Question

Johnny Mobile started a food truck business in 2017 by investing $100,000 of his own money in the corporation in exchange for stock. Mr. Mobile concentrates on serving Lobster Rolls and his profits have more than doubled from 2017 – 2019. Mr. Mobile does not understand why his profits have increased faster than his volume, but he believes that his focus and strategic positioning regarding high levels of customer service and product quality have helped fuel this growth in his business.

Projected sales for 2020 are $396,000 with a cost of goods sold (food costs only – Mr. Mobile only uses fresh ingredients) equal to $178,200 with the average lobster roll selling for $11.00.

Currently, Mr. Mobile owns two food trucks. One salaried person staffs each food truck full-time (annual cost per full-time food truck employee is $30,000) and six college students always work 30 hours per week helping out where needed (annual cost per helper employee is $15,000). An outside accountant prepares the taxes and bookkeeping at a cost of $900 per month. The necessary food trucks were originally purchased for cash in 2017. The annual depreciation expense for each food truck is $7,500. Propane and gas have typically run $7,165 annually. Mr. Mobile has noticed that annual expenses for accounting, depreciation, and propane/gas have been rather constant regardless of the sales level.

1. How much can Mr. Mobile’s 2020 projected sales decline before his operating income becomes $0?

Answer 1

	Sales		$396,000	100.00%
	Less : Cost of goods Sold		$178,200	45.00%
	Contribution Margin		$217,800	55.00%
	Less : Fixed Costs
	Employee Salary (30000*2)	60000
	Helper Emmployee (15000*6)	90000
	Accounting Charges (900*12)	10800
	Depreciation on Truck (7500*2)	15000
	Propane and Gas	$7,165
	Total Fixed Expenses		182965
	Net Income		$34,835
	We will have to calculate here the breakeven sale for the company where the companies net income would be zero and company would make loss
	Break Even Point = 182965/55%		332663.64
	If the company has sale of $ 332663.64 and below than the companies operating income would ne zero and negative
	Therefore, the projected income can decline by (396000-332663.64)					63336.36