Question

Hot cross is a student run hot cross bun stand operating on a university campus, open ten months of the year. Fruit buns are bought partially pre-baked and then heated in the sales cart and sold. You are given the following figures pertaining to next year’s budget:

Expected annual sales – 73,000 buns at $0.70 each
Staff salaries - $21,700 p.a.
Monthly hire of cart $ 50. The cart is only hired in the months required.
Cost of buying part-baked buns is $0.23 each.
Monthly electricity costs $30. As the cart is heated all the time when in use this electricity cost is the same each day, regardless of sales. No electricity costs are incurred in the non- operational months.
Fruit buns are given to customers in paper bags – one per bag- and bags cost $0.02 each.

The university cafeteria has offered space to sell the hot cross buns inside their buildings, using the cafeteria facilities to heat the rolls. If Betty Buns decides to take this option then they will be charged $1,000 per annum by the cafeteria. Betty Buns would no longer have to pay to hire the cart or pay for electricity, and the cafeteria will provide free paper bags for hot cross customers should they wish to take the bread rolls away rather than eat in the cafeteria. Is it worthwhile, based on current expected figures, for hot cross to move operations into the university cafeteria? Show calculations to support your answer

Answer 1

Calculation of Net Income

Particulars	Univ.campus($)	Univ.cafe($)
Sales	730000.70	730000.70
Less:
staff salaries	(21700)	(21700)
hire of cart	(5010)	-
Cost of buying part-baked buns	(730000.23)	(730000.23)
electricity costs	(3010)	-
cost of paper bags	(730000.02)	-
cafeteria rent	-	(1000)
Net Income	10,350	11,610

Increase in net income = $11,610-$10,350=$1,260

Hence It is worthwhile for hot cross to move operations into the university cafeteria.