Chapter 12, Problem 12.13MA

Summary Introduction

Case summary:

Company T is one of the biggest suppliers of chicken and beef in the Country U, where they supply over 100,000 head of cattle and they supply 30-plus millions chickens per week. Their primary distribution channels are the supermarket meat departments. Now the company want to expand their distribution into convenience stores. In the Country U, there are more than 150,000 gas stations and convenience stores where the Company T is to sell the hot buffalo chicken bites which are nearer to the checkout.

This will be the promising channel, and the sales are increasing significantly at those retail outlets and profit margins on the foods that are prepared is higher than the raw materials that are sold at the grocery store. Now, the Company T has to hire 10 more sales representatives at a salary of $45,000 each to enlarge into the distribution channel because many of the stores are separately own. Each of the convenience store is expected to produce an average of $50,000 as revenue for Company T.

To determine: The increase in the sales needed to break even on the rise in the fixed cost for hiring the new sales representatives.

Characters in the case:

• Company T
• Country U

A sale is a contract between two parties to buy and sell goods. Where one buys the goods and other sell the goods. Buyer receives goods and seller sells goods.

A fixed cost is a cost or expense that do not change with decrease or increase in goods or services produced. It is the cost which has to be paid by the company, excluding other business activity.