Joseph Giovine owns a successful hole-in-the-wall bagel shop called Peach Tree Bagels. Joseph wants to expand the shop by leasing the space next door for $1,000 per month and adding tables and chairs so that customers can dine in. He figures that the tables and chairs will cost $5,000 and that the bagel machine, which cost $4,500 five years ago, will have to be scrapped in favour of a larger machine costing $7,400. He thinks sales will increase by $5,500 per month. Variable costs are 55% of sales. A. What are the relevant costs and benefits of expanding into the new space? B. What are the irrelevant costs and benefits of expanding into the new space?
Joseph Giovine owns a successful hole-in-the-wall bagel shop called Peach Tree Bagels. Joseph wants to expand the shop by leasing the space next door for $1,000 per month and adding tables and chairs so that customers can dine in. He figures that the tables and chairs will cost $5,000 and that the bagel machine, which cost $4,500 five years ago, will have to be scrapped in favour of a larger machine costing $7,400. He thinks sales will increase by $5,500 per month. Variable costs are 55% of sales. A. What are the relevant costs and benefits of expanding into the new space? B. What are the irrelevant costs and benefits of expanding into the new space?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Joseph Giovine owns a successful hole-in-the-wall bagel shop called Peach Tree Bagels. Joseph wants to expand the shop by leasing the space next door for $1,000 per month and adding tables and chairs so that customers can dine in. He figures that the tables and chairs will cost $5,000 and that the bagel machine, which cost $4,500 five years ago, will have to be scrapped in favour of a larger machine costing $7,400. He thinks sales will increase by $5,500 per month. Variable costs are 55% of sales.
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A. |
What are the relevant costs and benefits of expanding into the new space? |
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What are the irrelevant costs and benefits of expanding into the new space? |
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