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Annie McCoy - Break Even Analysis

Annie McCoy, a student at Tech, plans to open a hot dog stand inside Tech's football stadium during home games. There are seven home games scheduled for the upcoming season. She must pay the Tech athletic department a vendor's fee of $3,000 for the season. Her stand and other equipment will cost her $4,500 for the season. She estimates that each hot dog she sells will cost her $0.35. She has talked to friends at other universities who sell hot dogs at games. Based on their information and the athletic department's forecast that each game will sell out, she anticipates that she will sell approximately 2,000 hot dogs during each game.
a. What price should she charge for a hot dog in order to break even?
b. What factors might occur during the season that would alter the volume sold and thus the break-even price Annie might charge?
c. What price would you suggest that Annie charge for a hot dog to provide her with a reasonable profit while remaining competitive with other food vendors?

Solution Preview

1. First calculate the total expenses:
Rent = 3000
Equipment = 4500
Raw materials cost = 0.35*2000*7=4900
Total expenses = 3000 + 4500 + 4900 = 12,400($)
In order to break even, she needs to earn $12,400 for the amounts of hot dog sold. So the price for 1 hot dog is:
12400/(2000*7)=$0.89 ...