Choosing the Right Business Option: A Reflective Analysis
Question 1 (3 points)
A local restaurateur, Cho Senn, is considering three options for his new Asian fusion restaurant. Option A - called Midtown - will have annual fixed costs of $40,500 and variable costs of $3.40 per customer. Option B - called Market - will have annual fixed costs of $29,500 and variable costs of $4.25 per customer. Finally Option C - called Mall - has annual fixed cost of $18,000 and variable costs of $4.90 per customer. If Mr. Cho averages $9.00 in revenue per customer, what volume is required to breakeven with Option B?
Your Answer:
Answer
To determine the volume needed to break even with Option B, we need to consider the total costs associated with this option. The total cost is the sum of fixed costs and variable costs, which are dependent on the volume of customers.
In this scenario, Option B has annual fixed costs of $29,500 and variable costs of $4.25 per customer. If Mr. Cho averages $9.00 in revenue per customer, we can calculate the breakeven volume as follows:
Total Cost (B) = Fixed Costs (B) + Variable Costs per Customer (B) * Volume (x)
Total Revenue = Total Cost
$9.00x = $29,500 + $4.25x
$4.75x = $29,500
x = 29,500 / 4.75
x ≈ 6,210 customers
Therefore, to breakeven with Option B, Mr. Cho would need to serve approximately 6,210 customers.