Question

1. Add a new product: Mac’s juice center, located near the university, serves as a gathering place for the university’s students. It sells orange juice at a contribution of $0.60 per bottle. Mac is considering selling sandwiches. He analyzed the following costs of adding sandwiches:

Per month		Per Sandwich
Monthly fixed costs:		Variable expenses:
Wages of cook	$ 1,200	Bread	$0.20
Other	$   300	Vegetables	$0.60
Total	$ 1,500	Total	$0.80

Mac planned a selling price of $1.20 per sandwich to lure many customers. He thinks atleast 60 extra bottles of orange juice can be sold each day because he has sanwiches available. Assume 30 days in a month.

How many sandwiches should he sell on average each day for it to be worthwhile for Mac to expand into sandwiches?

Answer 1

Additional Fixed Cost	$ 1,500
Additional contribution margin of Orange juice because of Sandwitch sale	$ 1,080	=60*30*0.6
Contribution margin of Sandwitch	$ 0.40	=1.2-0.8
Let the total number of Sandwitch to be sold be Y
Y x 0.40 + 1,080 = 1,500
0.40 Y = 1,500 - 1,080
0.40 Y = 420
Y = 420 / 0.40
Y = 1,050
He should sell on average each day Sandwitches	35	=1050/30