Sanjana’s Sweet Shoppe operates on the boardwalk of a New England coastal town.

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: Scenario Gross Margin per Customer (Price - Cost of Goods) Number of Customers Good $6.6 46,000 Fair 5.6 36,000 Poor 1.8 31,000 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 $46,000 plus $2 for every customer in excess of 36,000. The marketing and administrative costs are estimated to be $13,100 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.

Explanation / Answer

Scenario Gross Margin Number of Total Staffing Marketing and Operating per customer Customers Gross Margin Cost Administrative Cost Income Note 1 Note 2 A B C = A*B D E C - D - E Good 6.6 46000 303600 66000 22208 215392 Fair 5.6 36000 201600 46000 19148 136452 Poor 1.8 31000 55800 46000 14774 -4974 Note 1 Staffing cost - scenario good - 46000 paitents upto 36000 $46000 additional 10000 ( 46000- 36000 ) @ 2 per paitent = 10000 * 2 = 20000 Hence, total staffing cost = 46000 + 20000 = 66000 for other 2 scenario , as the number of paitents is 36000 and less staffing cost will remain at 46000 Note 2 Marketing and Administrative cost 13100 + 3% of gross margin Good = 13100 + 3% of 303600 = 22208 Fair = 13100 +3% of 201600 = 19148 Poor = 13100 + 3% of 55800 = 14774

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