Reference no: EM133062727

Question - You have leased 2,000 square feet of space in the Seaport District of Boston. You are considering 2 alternative uses of the space - operate a pizza shop or a wine bar.

Costs for each alternative is outlined below:

Variable cost are estimated at $8 for the pizza shop and $13 for the wine bar. Fixed costs would be the same under either alternative as outlined below:

Rent $6,000

Salaries & Wages 10,000

Utilities & Other Operating Costs 3,000

Depreciation of equipment & furnishings 2,000

Revenue per customer is estimated at $25 for the pizza shop $26 for the wine bar. You have estimated the 20 square feet is required for each customer if the space was used for a pizza shop versus 15 square feet for the wine bar. You estimate that the duration of each customer visit would be 1.5 hours for each option. Lastly, you believe customer volume (demand) will exceed the capacity of the location under either option.

Required - Determine which option (operate a pizza shop or wine bar) would yield a better financial outcome. Outline your relevant calculations to support your assertion.