Question

Can you explain this to me in detail?

Problem : You are a very savvy college student and start your own food stand from a catering truck. You understand the thought process of your peers and decide to do business when it would be most profitable, from 10:00pm to 3:00am. Considering vacations and finals, you only operate the catering truck 320 days per year. The truck is leased by you for $1000/month with a continuous 12 month lease. Additional expenses for insurance, maintenance, etc come out to $2000 per year. You also have 2 employees that work for $10/hr. However since they are very good employees, they alternate days and only one employee covers each shift. Also, you sell your products with a gross margin of 80% on every item.

1. Create a plausible income statement for 1 year of business such that you have a before tax income of $75,000.00. Do not consider income taxes for this homework assignment.

2. What were your total sales for the year?

3. Is this plausible in the amount of time that you are open?

Answer 1

Answer:

Total annual lease expenses = $1000 per month*12 months = $12,000

Annual expenses for insurance, maintenance etc = $2,000

Employee expenses = 320 days per year 5 hours per day $10 per hour = $16,000

(Note that each employee will work for only 320/2*5 = 800 hours per year)

Cost of goods sold = 0.2% of revenues (as margin is 80%)

= 0.2 * $131,250

= $26,250

1. For computing the total sales lets assume that total sales = "x". Thus gross profit = 0.8x. Other expenses = truck lease + insurance + employee expenses = 12,000 + 2,000 + 16,000 = $30,000

Thus 0.8x - 30,000 = 75,000

0.8x = 75,000+30,000

x=105,000/(0.8)

x=$131,250

Thus plausible income statement will be:

Income statement	(in $)
Revenue	131,250.00
less: cost of goods sold	26,250.00
Gross profit	105,000.00
less: operating expenses
Truck lease expenses	12,000.00
Insurance, maintenance	2,000.00
Employee expenses	16,000.00
Total expenses	30,000.00
Total expenses	75,000.00

2. Total sales for the year = $131,250

3. Yes, it is plausible in the amount of time in which it is open. Total hours for which it will be open = 320 days * 5 hours per day = 1600 hours

Thus hourly sales = annual sales/1600 hours in a year

= $131,250/1600 hours

= $82.03 per hour.

The sales figure of $82.03 per hour is easily achievable given the demand from students will be high at this time.