What is the break-even point for both options? What profit would the expected sales of each option achieve? How many boxes of each option would Heriot and Watt have to sell if they wanted to achieve a profit of £800.
What is the break-even point for both options? What profit would the expected sales of each option achieve? How many boxes of each option would Heriot and Watt have to sell if they wanted to achieve a profit of £800.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Heriot and Watt are planning to open a small shop selling lunch boxes, which they will prepare on the premises. After experimenting for some weeks Heriot and Watt have arrived at two possible lunch box sets, which they think will be popular: Lunch Box A and Lunch Box B. As they can only prepare one lunch box on the premises, they need to decide, which one to choose. The following information is available:
Lunch Box A:
- Selling price £8
- Ingredients £3
- preparation time £1
- Biodegradable box £0.50
Lunch Box B:
- Selling price £7
- Ingredients £2
- preparation time £0.70
- Biodegradable box £0.50
Required:
You are tasked to help Heriot and Watt to make their decision and provide the information below:
- What is the break-even point for both options?
- What profit would the expected sales of each option achieve?
- How many boxes of each option would Heriot and Watt have to sell if they wanted to achieve a profit of £800.
- Heriot and Watt are considering a selling price increase of 10% for both lunch box options. How many boxes of each option would they have to sell to achieve a target profit of £900?
- Based on the information calculated above (a – d) explain, which option Heriot and Watt should choose: Lunch Box A or Lunch Box B. You should also consider if the information you calculated is sufficient for making an informed
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