Reference no: EM1354752
Currently, Corner Lunch Counter sells only Super Burgers for $2.50 each. During a typical month, the Counter reports a profit of $9000 with sales of $50,000 and fixed costs of $21,000. Management is considering the introduction of a new Super Chicken Sandwich that will sell for $3 and have variable costs of $1.80. The addition of the Super Chicken Sandwich will require hiring additional personnel and renting additional equipment. These actions will increase monthly fixed costs by $7, 760.
In the short run, management predicts that Super Chicken sales will average 10,000 sandwiches per month. However, almost all short-run sales of Super Chickens will come from regular customers who witch from Super Burgers to Super Chickens. Consequently, management predicts monthly sales of Super Burgers will decline by 10,000 units to $25,000. In the long run, management predicts that Super Chicken sales will increase to 15,000 sandwiches per month that Super Burger sales will increase to 30,000 burgers per month.
a. Determine each of the following:
a. The current monthly break-even point in sales dollars.
b. The short run monthly profit and break-even point in sales dollars subsequent to the introduction of Super Chickens.
c. The long run monthly profit and break-even point in sales dollars subsequent to the introduction of Super Chickens.
b. Based on your analysis, what are your recommendations.
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