Anoushka, a young MBA student, has just passed out from her college. Her batch mates have decided to join the corporate world, through their campus job placement whereas she has decided to be an entrepreneur. Anoushka has a business plan to open a fast food outlet in the heart of the city she lives in. Initially, the outlet is supposed to sell only burgers. Later on, she thinks of adding pizzas and desserts to the menu. The cost of cooking each burger comes to be INR 5. The service cost per burger comes to be INR 2. The cost of additional serving per burger is INR 1. The burgers are cooked on demand; hence, there will be no inventory storage costs. The selling price per burger is initially fixed at INR 12. Instead of buying the place, Anoushka decides to rent a place for of the fast food outlet. The rent will be INR 5,000 per month. Anoushka applies for the loan for buying the kitchenware, furniture and other decorative items. Her application is under the category of women entrepreneurial development loan and gets easily passed by a public sector bank. She is supposed to pay INR 40,000 per annum as fixed interest payment towards the loan.

The variable cost of one burger comes out to be:

Cost of cooking one burger

INR 5.00

Service cost per burger

INR 2.00

Additional serving per burger

INR 1.00

Variable cost per burger

INR 8.00

The contribution margin per burger is:

Selling price

INR 12.00

Variable cost

INR 8.00

Contribution margin per burger

INR 4.00

The total fixed cost per annum for burger:

Rent

INR 60,000

Interest

INR 40,000

Total fixed costs per year

INR 100,000

  1. How many burgers should Anoushka be able to sell at least so that the outlet breaks even?
  2. Anoushka wants to set her target beforehand. Help her find out the number of burgers she should sell to be able to earn a net income of (a) INR 20,000, (b) INR 5,00,000, (c) INR 10,00,000.
  3. After starting the business for one year, Anoushka realizes that her service cost per burger can be reduced to INR 1 by hiring some low cost employees.

The variable cost of one burger after one year comes out to be:

Cost of cooking one burger

INR 5.00

Service cost per burger

INR 1.00

Additional serving per burger

INR 1.00

Variable cost per burger

INR 7.00

The contribution margin per burger is:

Selling price

INR 12.00

Variable cost

INR 7.00

Contribution margin per burger

INR 5.00

Now, how many burgers must Anoushka sell to:

  1. break even?
  2. earn an annual profit of INR 2,00,000?
  3. earn an annual profit of INR 5,00,000?
  4. earn an annual profit of INR 10,00,000?
  5. After one year, Anoushka is able to find another place in the vicinity of her previous place. Now this time she gets it for a lower rate, i.e., INR 3,500 per month. All other costs and the selling price are expected to remain the same as those in the original data. Now what is her breakeven level and target profit sales?

Rent

INR 42,000

Interest

INR 40,000

Total fixed costs per year

INR 82,000

  1. How many burgers must Anoushka sell to:
    1. break even?
    2. earn an annual profit of INR 2,00,000?
    3. earn an annual profit of INR 5,00,000?
    4. earn an annual profit of INR 10,00,000?
  2. Suppose after a few years, Anoushka decides to increase the selling price of her burgers by one rupee, i.e., now the customer will pay INR 13 for each. She is confident that customers will pay the increased amount. All costs remain the same as given in the original data.

How many burgers must Anoushka sell to:

  1. break even?
  2. earn an annual profit of INR 2,00,000?
  3. earn an annual profit of INR 5,00,000?
  4. earn an annual profit of INR 10,00,000?