Uncle Sam has been selling pies on the sidewalk of Main Street for quite a number of years. He is a crowd favorite because of the excellent flavor, consistent quality and variety. Every day Uncle Sam would purchase freshly made pies from an out-of-own bakery for $2.00 each and sell them for $4.00 each. The pies are neatly packed in a small, glass showcase built on a metal stand. He purchased this stand at a cost of $500.00. The labels on the showcase, give the various fillings – fish, chicken, potato and cheese. He is usually sold out by 10 a.m. The City Council has recently taken a decision to move all roadside vendors to a new facility built to accommodate these vendors on a busy corner of Main Street. The new facilities are equipped with basic amenities and a small dining area. Each vendor would have to rent a booth from the City Council. In a quest to quell vendors’ protests, the City Council has agreed to two payment options. (1) A fixed weekly rental payment of $300.00 (2) 10% of sales with no fixed weekly rental payment Confused by the issue, Uncle Sam contacted his niece Vana, who has some accounting training, to advise him on what he should do. Vana tells him not to worry and that she would use cost-volume-profit analysis to determine the best solution. You are Uncle Sam's niece explain and discuss the best solution for Uncle Sam using CVP Analysis.
Uncle Sam has been selling pies on the sidewalk of Main Street for quite a number of years. He is a crowd favorite because of the excellent flavor, consistent quality and variety. Every day Uncle Sam would purchase freshly made pies from an out-of-own bakery for $2.00 each and sell them for $4.00 each. The pies are neatly packed in a small, glass showcase built on a metal stand. He purchased this stand at a cost of $500.00. The labels on the showcase, give the various fillings – fish, chicken, potato and cheese. He is usually sold out by 10 a.m. The City Council has recently taken a decision to move all roadside vendors to a new facility built to accommodate these vendors on a busy corner of Main Street. The new facilities are equipped with basic amenities and a small dining area. Each vendor would have to rent a booth from the City Council. In a quest to quell vendors’ protests, the City Council has agreed to two payment options.
(1) A fixed weekly rental payment of $300.00
(2) 10% of sales with no fixed weekly rental payment
Confused by the issue, Uncle Sam contacted his niece Vana, who has some accounting training, to advise him on what he should do.
Vana tells him not to worry and that she would use cost-volume-profit analysis to determine the best solution.
You are Uncle Sam's niece explain and discuss the best solution for Uncle Sam using CVP Analysis.
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