Question

Congratulations, you have just purchased a gourmet coffee shop on Rush Street for $100,000. The current prices are $1.50 for a cup of coffee and 50 cents for a donut. You sell 1 donut for every 3 cups of coffee. While you make a number of gourmet drinks at higher prices as well, these two items are your biggest sellers. Your costs are as follows: Coffee per cup 15 cents Sugar and cream per cup 5 cents Cinnamon and chocolate per cup 2 cents Cups and lids 3 cents, Donuts cost 25 cents Help 2 people normally, each paid $8 per hour Extra help on busy weekends 2 people Your rent is $3000 / month Utilities are $200 / month Advertising $100 / month There are four other coffee shops within walking distance. Starbucks is just around the corner. The past owners sold 300 cups of coffee per day during the week and 500 cups on weekends. Your store is open 10 hours a day every day. Your banker has a few questions for you. At what volume of sales will you be able to record a net income before taxes for the year of $50,000? At what volume of sales for the year will you be able to record an investment return of 50%? What non-financial information would be important to you as a manager? What is the cost of each cup of coffee? Based on the above, develop a business strategy and list the advantages and disadvantages, explain it to your banker.

Answer 1