Mark Twain recently opened Mark’s Brew Pub in the University District. Because of licensing

Mark Twain recently opened Mark’s Brew Pub in the University District. Because of licensingrestrictions, the only liquor he can sell is beer. The average price of beer at Mark’s Brew Pubis $3.00 per glass, and each glass costs Mark an average of $2.20. Mark has hired a bartenderand waiter at $3,000 and $2,000 per month, respectively. His rent, utilities, and other fixedoperating costs are $5,000 per month.Mark is considering selling hamburgers during the lunch hour. He would like to sell theburgers for $1.25 each. Mark can buy buns for $1.20 per dozen and ground beef for $2.80per pound. Each pound of ground beef will make 7 burgers. Other ingredients will cost$0.20 per burger. Mark will also need to hire a part-time cook at $1,200 permonth.Other additional fixed costs will run about $340 per month.REQUIRED:a. If Mark sells only beer, how many glasses of beer does he have to sell each month tomake a monthly profit of $2,000?b. Suppose Mark decides to add hamburgers to his menu. How many hamburgers does heneed to sell to break even on the hamburgers? Assume there is no effect on beer sales.c. Mark was not sure how many new customers would be attracted by the hamburgers.Give Mark some advice about how many new customers would be needed to just breakeven on the new business if each new customer bought one hamburger and one beer.Problem 2Laundry Fresh provides commercial laundry and dry cleaning services to local hospitals, hotels, andrestaurants. Management believes that the dry cleaning business is a "loser," even though drycleaning operations yield a high contribution margin. Moreover, based on summary financial datafrom the most recent year of operations (presented below) management is seriously consideringgetting out of the dry cleaning business.RevenueLess: Variable costsContribution marginLess: Traceable fixedcostsLess: Common fixedcostsProfitLaundry3,000,0001,000,0002,000,000Dry Cleaning1,000,000200,000800,000Total4,000,0001,200,0002,800,0001,000,000500,0001,500,000500,000500,000500,000(200,000)1,000,000300,000Traceable fixed costs are incurred directly by the identified line of business. Common fixed costsare common to both lines of business and have been arbitrarily allocated equally to each line, e.g.,sales force, reception, and delivery trucks.REQUIRED:a. Assume that common fixed costs would decrease by $200,000 if the dry cleaning businesswere closed. By how much will Laundry Fresh’s profit increase or decrease if it closes thedry cleaning operations?b. Suppose that closing the dry cleaning business would increase overall laundry revenue by10%. Specifically, while some customers would be lost because they value one-stop cleaningconvenience, the sales force will be better able to focus its efforts because there will be onlyone product line. How does this information affect your answer to part (a)? That is, by howmuch will Laundry Fresh’s profit increase or decrease if it closes the dry cleaning operations?Problem 3FDR Corp. estimates it will produce 30,000 units of a part that goes into its final product. Itcurrently produces this part internally, but is considering outsourcing this activity. Currentinternal capacity permits for a maximum of 60,000 units of the part. The production managerhas prepared the following information concerning the internal manufacture of 60,000 unitsof the part:Direct materialsDirect laborVariable overheadFixed overheadTotal costPer unit$3.004.005.006.00$18.00The fixed overhead of $6 per unit includes a $1.50 per unit allocation for salary paid to asupervisor to oversee production of the part. The fixed costs would not be reduced byoutsourcing, except the supervisor would be terminated. Assume that if FDR outsources,its purchase price from the oursourcer is $12 per unit.REQUIRED:a. Should FDR outsource? Provide support for your answer.b. Assume FDR has received a special order for 10,000 units of the part from Alpha Corp.Alpha will pay FDR $23 per part, but will take the parts only if they have been manufacturedby FDR. Thus, Alpha will engage in the special order only if FDR does not outsource anyof its production. Should FDR accept the special order? Explain why or why not.Problem 4Boombox Stereos sells high-end stereo equipment to specialty audio and video shops.Boombox serves three different types of customers: small, medium, and large. Customersare placed into these categories based on the average revenue generated per visit "small" customers yield average revenue of less than $20,000 per visit, "medium" customersyield an average revenue of $20,000-$40,000 per visit, and "large" customers yield anaverage revenue of over $40,000 per visit. Data for a typical sales territory are providedbelow:# of customers in territorySmall50Customer CategoryMedium25Large10Average sales revenue pervisit$15,000$30,000$45,000Average time to visit acustomer1.0 hour2.0 hours5.0 hoursSalespersons can realistically spend 125 hours per month visting customers andgenerating orders. Salespersons’ remaining time is spent in the head office fillingout paperwork, learning about the company’s products, and attending salesmeetings. With only 125 hours available per month to visit customers and generatesales revenue, salespersons unfortunately cannot visit all of the potential customersin their territory.REQUIRED:a. Traditionally, Boombox’s salespersons have given top priority to large customersbecause these customers generate the most revenue per visit. Calculate monthlyrevenue in a typical sales territory if, in a given month, a salesperson first visits allthe large customers, then visits all the medium customers, and, finally, squeezes inas many small customer visits as possible.b. Bill Bold is Boombox’s top salesperson. In contrast to conventional wisdom, Billfocuses first on the small and medium customers and, if time permits, the largecustomers. He tells anyone who will listen that large customers are not worth thebother. "You can win a game with singles" is the mantra that Bill preaches. Calculatemonthly revenue using Bill’s sales strategy. How do you explain Bill’s success?