Introduction
Kate and John own a fruit and vegetable business and employee their son Tony part time. Tony decides to explore the options of having a side business, in which he would produce gift basket to then sell through his parents business. The gift baskets will contain fruit, nuts and confectionary that will be supplied by the business.
To see if this is a profitable business venture, there are a few things Tony should consider. These include, fixed and variable costs, location, competition and the number of baskets that need to be sold for Tony to breakeven.
Once Tony has decided he wanted to pursue the gift basket venture, he must negotiate terms with his parents. They have agreed to let Tony to retain all profit from his side business, …show more content…
Explain why these solutions do not give Tony a useful indication of the number of baskets that he needs to sell in his business plan.
The breakeven is not a useful indication of the number of baskets sold in Tony’s business plan, because we assume that in his business plan he would of wanted to make a profit. So therefore achieving breakeven would not be suitable for his business plan.
4. Tony has now realised that he needs to focus on one specific type of basket. Select one type of basket and using the variable and fixed cost given:
A. State the sales revenue achieved when Tony breakeven.
B. Graphically display Tony’s breakeven scenario.
C. Discuss how realistic the breakeven number is for Tony business. I chose the deluxe basket because it had a better marginal income than the basic basket and it was equal with the regular basket. The deluxe basket has the highest cost with the selling price of $65. It also needs to sell 120 baskets to breakeven.
Unit Total Revenue
0 $3000 0
363 (363 X $40) + $3000
=$17520 $65 X 363
= …show more content…
However as the sell price is higher, the low breakeven figure may be deceiving. As we assume that the business is open 7 days excluding major holiday such as Christmas Day and Good Friday, then the business trades 363 days a year. So we divided the breakeven number of 150 baskets by 365, which means that Tony must sell 0.41 baskets per day or 2.89 per week (0.41 x 7). 2.89 is a very realistic number of baskets to sell and should be very achievable for Tony.
5. Estimate, with reason, a realistic number of baskets that the business might expect to sell in a year and find the profit if these sales figures were met.
The number of baskets chosen is 7 baskets. This number was chosen because of where it is assumed the location of the business is. It’s assumed that his location is in a busy street in Norwood, which has easy access to the shop. Another reason I chose the number 7 is because I thought that it is a good achievable amount that can be reached, as it is 1 basket per day.
Given the busy location of the business, but considering the high sell price of $65, I think it would be reasonable to sell 1 basket a day, 7 a week or 363 a year (keeping in mind, closure on Christmas Day and Good Friday.)
Below is the formula followed by calculations of sales revenue for selling 363 baskets each with variable and fixed cost of $40 and $3000
Kate and John own a fruit and vegetable business and employee their son Tony part time. Tony decides to explore the options of having a side business, in which he would produce gift basket to then sell through his parents business. The gift baskets will contain fruit, nuts and confectionary that will be supplied by the business.
To see if this is a profitable business venture, there are a few things Tony should consider. These include, fixed and variable costs, location, competition and the number of baskets that need to be sold for Tony to breakeven.
Once Tony has decided he wanted to pursue the gift basket venture, he must negotiate terms with his parents. They have agreed to let Tony to retain all profit from his side business, …show more content…
Explain why these solutions do not give Tony a useful indication of the number of baskets that he needs to sell in his business plan.
The breakeven is not a useful indication of the number of baskets sold in Tony’s business plan, because we assume that in his business plan he would of wanted to make a profit. So therefore achieving breakeven would not be suitable for his business plan.
4. Tony has now realised that he needs to focus on one specific type of basket. Select one type of basket and using the variable and fixed cost given:
A. State the sales revenue achieved when Tony breakeven.
B. Graphically display Tony’s breakeven scenario.
C. Discuss how realistic the breakeven number is for Tony business. I chose the deluxe basket because it had a better marginal income than the basic basket and it was equal with the regular basket. The deluxe basket has the highest cost with the selling price of $65. It also needs to sell 120 baskets to breakeven.
Unit Total Revenue
0 $3000 0
363 (363 X $40) + $3000
=$17520 $65 X 363
= …show more content…
However as the sell price is higher, the low breakeven figure may be deceiving. As we assume that the business is open 7 days excluding major holiday such as Christmas Day and Good Friday, then the business trades 363 days a year. So we divided the breakeven number of 150 baskets by 365, which means that Tony must sell 0.41 baskets per day or 2.89 per week (0.41 x 7). 2.89 is a very realistic number of baskets to sell and should be very achievable for Tony.
5. Estimate, with reason, a realistic number of baskets that the business might expect to sell in a year and find the profit if these sales figures were met.
The number of baskets chosen is 7 baskets. This number was chosen because of where it is assumed the location of the business is. It’s assumed that his location is in a busy street in Norwood, which has easy access to the shop. Another reason I chose the number 7 is because I thought that it is a good achievable amount that can be reached, as it is 1 basket per day.
Given the busy location of the business, but considering the high sell price of $65, I think it would be reasonable to sell 1 basket a day, 7 a week or 363 a year (keeping in mind, closure on Christmas Day and Good Friday.)
Below is the formula followed by calculations of sales revenue for selling 363 baskets each with variable and fixed cost of $40 and $3000