Business, 17.12.2019 19:31 kami2006

The problemyou own and manage a pretzel and lemonade concession cart. you decide that you want to sell your products at a nascar® race weekend in loudon, nh. the racetrack owners let you choose one of the following rental "options": low "overhead" rent - "commission" of 30% of total saleshigh "overhead" rent - $1,000 fixed rental cost for the entire weekendyour food and beverage costs are 20% of total sales. you also have to pay an employee $400 to run the cart over the weekend. question 1 – find breakevenfor each scenario, calculate at what level of sales where you will reach the breakeven point. question 2 – calculate degree of operating leverageyou estimate that your sales for the weekend will either be "average" or "great": average: $2,800 in salesgreat: 50% higher than "average" or $4,200what is your degree of leverage at average sales of $2,800 for both the low and high overhead scenario? operating leverage = sales – total variable cost sales – total cost (fixed and variable)question 3 – calculate profits and increase in profitabilitycalculate the profit potential for an average and great weekend for both the low overhead scenario and the high overhead scenario. how much did profits increase by relative to an increase in sales for both scenarios? how does this compare with the answers you derived in question 2? conclusioncompanies with a higher fixed overhead (and hence, lower variable costs relative to fixed costs) must reach a higher level of sales prior to becoming profitable. however, they will enjoy a greater increase in profits as sales increase. high operating leveragelow operating in profitsfasterslower

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