Question

Sanjana’s Sweet Shoppe operates on the boardwalk of a New England coastal town. The store only opens for the summer season and the business is heavily dependent on the weather and the economy in addition to new competition. Sanjana Sweet, the owner, prepares a budget each year after reading long-term weather forecasts and estimates of summer tourism. The budget is a first step in planning whether she will need any loans and whether she needs to consider adjustments to store staffing. Based on expertise and experience, she develops the following.

	Gross Margin per Customer
Scenario	(Price – Cost of Goods)			Number of Customers
Good		$6.0		40,000
Fair		5.0		30,000
Poor		1.8		25,000

Sanjana assumes, for simplicity, that the gross margin and the estimated number of customers are independent. Thus, she has nine possible scenarios. In addition to the cost of the products sold, Sanjana estimates staffing costs to be $35,000 plus $2 for every customer in excess of 30,000. The marketing and administrative costs are estimated to be $11,900 plus 3 percent of the gross margin.

Required:

Prepare an analysis of the possible operating income for Sanjana similar to that in Exhibit 13.15. What is the range of operating incomes?

Required: Prepare an analysis of the possible operating income for Sanjana similar to that in Exhibit 13.15. What is the range of operating incomes? Operating op Costs Marketing & Admin Operating Profit (Loss) Gross Margin $ 1.8 5.0 Poor Fair Good 6.0 Poor 1.8 Number of of Gross Margin arnes Marcin Customers 25,000 25,000 25,000 30,000 30,000 30,000 40,000 40,000 40,000 Fair 5.0 Good 6.0 1.8 Poor Fair Good $ $ $ 5.0 6.0

Answer 1

	Gross Margin	Number of customers	Total gross margin	Operating costs	Marketing and Admin	Operating profit (loss)
	(a)	(b)	[(c) = (a) X (b)]	(d)	(e)	[(c) - (d) - (e)]
Poor	1.8	25,000	$                45,000	$          35,000	$                   13,250	$                     -3,250
Fair	5.0	25,000	$              125,000	$          35,000	$                   15,650	$                    74,350
Good	6.0	25,000	$              150,000	$          35,000	$                   16,400	$                    98,600
Poor	1.8	30,000	$                54,000	$          35,000	$                   13,520	$                      5,480
Fair	5.0	30,000	$              150,000	$          35,000	$                   16,400	$                    98,600
Good	6.0	30,000	$              180,000	$          35,000	$                   17,300	$                  127,700
Poor	1.8	40,000	$                72,000	$          55,000	$                   14,060	$                      2,940
Fair	5.0	40,000	$              200,000	$          55,000	$                   17,900	$                  127,100
Good	6.0	40,000	$              240,000	$          55,000	$                   19,100	$                  165,900

	Gross Margin	Number of customers	Total gross margin	Operating costs	Marketing and Admin	Operating profit (loss)
	B	C	D	E	F	G
Poor	1.8	25000	=B3*C3	=35000	=11900+3%*D3	=D3-E3-F3
Fair	5	25000	=B4*C4	=35000	=11900+3%*D4	=D4-E4-F4
Good	6	25000	=B5*C5	=35000	=11900+3%*D5	=D5-E5-F5
Poor	1.8	30000	=B6*C6	=35000	=11900+3%*D6	=D6-E6-F6
Fair	5	30000	=B7*C7	=35000	=11900+3%*D7	=D7-E7-F7
Good	6	30000	=B8*C8	=35000	=11900+3%*D8	=D8-E8-F8
Poor	1.8	40000	=B9*C9	=35000+10000*2	=11900+3%*D9	=D9-E9-F9
Fair	5	40000	=B10*C10	=35000+10000*2	=11900+3%*D10	=D10-E10-F10
Good	6	40000	=B11*C11	=35000+10000*2	=11900+3%*D11	=D11-E11-F11