Reference no: EM132762455

Thanks to an appearance on the Food Network, the Great Tamale food cart has experienced a phenomenal first year. In its first year of operations the company sold 31,125 plates of food and had the below sales and cost figures.

Sales                         $217,875.00
Variable costs             46,687.50
Contribution margin      171,187.50
Fixed costs               90,000.00
Income before taxes       81,187.50
Income taxes (32% rate)  25,980.00
Net income                       $ 55,207.50

• The best friends worked tirelessly in their first year of operations and know that another challenging and competitive year lies ahead of them. Now entering their second year of operations, they are considering two alternatives and have hired your consulting group, known for its inventive business and accounting consulting work, to help them make some important business decisions.
• After experiencing such great success with their food cart, Nathan and Cody are considering purchasing a food truck to serve other communities. This would allow the Great Tamale, GT, to reach even more customers in different geographic locations. 
• There would be an increase in the selling price per plate. There will also be an increase in the fixed costs of $30,000 for advertising to inform the public of this change (this amount is already included below under Food Truck data). The financial information is presented below for this alternative as well as the original data. Assume 31,125 plates are sold for the food cart and 45,625 plates are sold for the food truck.

Problem 1.) Compute the company's contribution margin under both scenarios, if GT decides to remain a regular food cart and if they decide to become a food truck. Compute the contribution margin both in total dollars and per unit.

Problem 2.) Compute the company's contribution margin ratio under both scenarios. (Note: Do not round the CMR for accurate calculations in the following questions).

Problem 3.) Compute the break-even point in sales dollars under each scenario. How many plates will need to be sold under each situation to break-even?