Question

Express your answers in an Excel Document.

The Great Tamale Alternative 1- Food Truck 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.

	Food Cart	Food Truck
Sales	$ 217,875.00	$ 365,000.00
Variable cost	46,687.50	103,437.50
Contributuion margin	171,187.50	261,562.50
Fixed Cost	90,000.00	147,500.00
Income Before Taxes	81,187.50	114,062.50
Income Taxes (32% rate) Net income	25,980.00 $55,207.50	36,500.00 $77,562.50

Required:

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

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

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?

Answer 1

1) Contribution margin if GT decides to remain a regular food cart.
	Food Cart
1	Sales	$2,17,875
2	Less:variable costs	$46,687.5
3	Contribution margin in dollars (1-2)	$1,71,187.5
4	Number of units	31,125
5	CM per unit (3/4)	$5.50
	Contribution margin if GT decides to remain a food truck
		Food Cart	Food Truck	Total
1	Sales	$2,17,875	$3,65,000	$5,82,875
2	variable costs	$46,687.5	$1,03,437.5	$1,50,125
3	Contribution margin in dollars (1-2)	$1,71,187.5	$2,61,562.5	$4,32,750
4	Number of units	31,125	45,625	76,750
5	CM per unit (3/4)	$5.50		$6
	2) Contribution margin ratio = contribution margin / sales
		Food Cart	Food Truck	Total
1	Sales	$2,17,875	$3,65,000	$5,82,875
2	Contribution margin in dollars	$1,71,187.5	$2,61,562.5	$4,32,750.0
3	Contribution margin ratio	78.57%	71.67%	74.24%
	3) Break even point = fixed costs / contrubution margin per unit
	Break even point under original scenario = 90000 / 5.5=16,364 Plates
	Break even point under both scenarios = 237500 / 5.64=42122 Plates