Reference no: EM133093763

Question - Costing and Pricing Course - Juice Bang Bang (JBB) is a food and beverage operator based in Scarborough, Ontario. The company was started in 2011 and currently they have five (5) outlets up and running at various shopping malls within the region. Sales have been good with continuous increases in revenue and net income year to year.

The Chief Operating Officer (COO) for JBB, Linda Jones, has been giving serious consideration to opening a standalone unit to be located in Grimsby, Ontario. Grimsby has a growing population of approximately 26,000 and is conveniently located as the halfway point in between Hamilton and St. Catharines. The residents of Grimsby work within the township itself as well as other communities in and outside of the Niagara region.

The possible standalone unit would be a departure from the current business model for JBB which has relied upon leasing space in shopping mall food courts.

Mary envisions the standalone unit to be open 7 days a week and 12 hours a day (9:00 AM - 9:00 PM). This unit would offer a very comfortable environment for customers with flat screen TVs and free Wi-Fi.

If Linda were to go ahead with a standalone unit the following costs would be incurred.

Building purchase: $600,000.

Annual insurance expense: $1,400.

Electricity expense: $400 per month.

Water expense: $100 per month.

Gas expense: $200 per month.

Property maintenance: $50 per month.

Internet and telephone: $160 per month.

Equipment & Furniture purchase: $128.000.

Management salaries: $2,800 per month.

Business tax expense: 16%

The building purchase would require a 20 year mortgage financed through Toronto Super Credit Bank with an interest rate of 3.2%. Depreciation would be at 5% per annum.

The equipment and furniture purchase would be financed with a 5 year loan at an interest rate of 5.2%. Depreciation would be at 18%.

The financial goal with the standalone unit is to achieve a net income value of $1,800 per month.

Menu and historical sales data reveals the following information:

Linda needs to present a proposal to the senior executive team next week. At this time, she is not sure if the project is financially viable.

Required - You must show all your work for the following:

1. Calculate the required number of customers to be served to break even per year.

2. Calculate the required number of customers on a per hour basis to break even.