Question

Complete the questions for the enclosed case, Cat & Joe Case. Required Questions:

1. List and briefly describe the advantages and disadvantages inherent to the food truck business model as compared to traditional restaurants. 2a. On a typical day in Kamloops, how many “Ripped Pig” sandwiches must be sold in order to break even? 2b. Comment on Cat and Joe’s breakeven point (calculated in Part a). Should this number be relevant to the entrepreneurs? 2c. If Cat and Joe wish to make a $100,000 profit for the year (after tax), how many pulled pork sandwiches must the Pig Rig sell each day? Assume all days are in Kamloops at regular prices. 3. Prepare a contribution-format income statement for one day’s business at the Pig Rig based on optimistic, realistic, and pessimistic projections for a regular, non-event day in Kamloops. 4. Prepare a contribution-format income statement for the Bullarama event based on an optimistic projection (no onsite competitors), a conservative projection (one onsite competitor), and a pessimistic projection (two onsite competitors). 5. What are the nonfinancial advantages and disadvantages of attending Bullarama? 6. Assume Cat and Joe were told that they should expect one onsite competitor. Would you recommend they stay in Kamloops for the day or go to Bullarama? Justify your answer with both financial and nonfinancial data.

Answer 1

1.

Advantage:

· Lower cost, cause buying or renting a truck would be much cheaper than buying or renting a real estate.

· Flexible location, the food truck can change its location easily.

· No labor cost

Disadvantage:

· Limited space to cook food

· Limited variety of food

· No fixed location, it not easy for customer knew where to find them.

2.(a)

The operational year for the food truck was 180 days

2(b) Yes, this is relevant to Cat and Joe. If they can’t sell 8 sandwiches a day, they shouldn’t be in business.

2.(c)

The operational year for the food truck was 180 days

3.

Contribution Income Statement
	Sale Volume
	125	100	75
	Optimistic	Realistic	Pessimistic
Sales (@$12 per unit)	$            1,500.00	$             1,200.00	$                   900.00
Variable Cost (40% of the Sales)	600.00	480.00	360.00
Contribution Margin	900.00	720.00	540.00
Fixed Cost	55.56	55.56	55.56
Net operating Income	$                844.44	$                 664.44	$                   484.44

4.

Contribution Income Statement
Balluarama Event
	No competitors	One Competitor	Two Competitors
Sales	$            2,205.00	$             1,107.00	$                   738.00
Variable Cost	710.50	356.70	237.80
Contribution Margin	1,494.50	750.30	500.20
Fixed Cost	285.56	285.56	285.56
Net Income	$            1,208.94	$                 464.74	$                   214.64

1.

	No competitors	One Competitor	Two Competitors
Price	$                    9.00	$                     9.00	$                       9.00
Attendees	700	700	700
Potential customers (35% of attendees)	245	245	245
Sales Volume (Potential customers/no. of vendors)	245	123	82
Sales	$            2,205.00	$             1,107.00	$                   738.00

  

2.

3.

              = 100+100+30+55.56 = 285.56

5. The nonfinancial advantage of attending Bullarama event is that it is an opportunity to expose their product to a new potential market. The disadvantage would be a possible opportunity cost of a day’s revenue from local business.

6. I would like to recommend them to stay in Kamloops for the day. Base on the two contribution income statements given in part 3 and part 4, Cat and Joe could earn at least $484.44 per day staying in Kamloops, while they could only earn $464.74 by going to Bullarama events. In addition, there is a possibility to have more than one onsite competitor, and there is also the risk that customers in a new market may not accept their product.