fr3_soln - UNIVERSITY OF CALIFORNIA HAAS SCHOOL OF BUSINESS...

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UNIVERSITY OF CALIFORNIA HAAS SCHOOL OF BUSINESS EWMBA 201A—Economic Analysis for Business Decisions Fall 2007 Professor Catherine Wolfram 1. Jimmy Beans Café has noticed a decline in the number of students coming in for breakfast over the past two months. They are debating changing their hours of operation and only serving lunch and dinner. They've called you in to advise them on their decision. They show you the following table: Monthly Accounting at Jimmy Bean’s Café, September 2001 [Numbers in parentheses represent negative amounts.] Breakfast Lunch Dinner Total Hours of operation 7AM-11AM 11AM-3PM 3PM-7PM 7AM-7PM Meals served 2,400 6,400 3,000 11,800 Revenue $7,200 $32,000 $15,000 $54,200 Food cost $600 $8,000 $3,000 $13,600 Other direct costs * $4,800 $9,600 $7,200 $21,600 Overhead ** $4,600 $4,600 $4,600 $13,800 Profit ($2,800) $9,800 $200 $7,200 * Other direct costs include the wages of the counter and kitchen staff. All workers earn $15/hour. Jimmy Beans staffs 4 people between 7AM and 11AM, 8 people from 11AM – 3PM and 6 from 3PM-7PM. Jimmy Beans is only open weekdays, or 20 days per month. ** Overhead includes the lease on the building, the manager’s salary, and licensing fees that they pay to Lalime’s Restaurant. Since Lalime’s developed several of the Jimmy Beans recipes (including about half of the meals at breakfast), Jimmy Bean’s must pay Lalime’s $0.20 for each meal they serve using a Lalime’s recipe. Overhead costs are allocated equally across Breakfast, Lunch and Dinner because Jimmy Bean’s is open 4 hours a day for each meal. Should Jimmy Beans stop serving breakfast? If they do, by how much would their profits change? Most of the overhead would be unchanged if JB stopped serving breakfast. The license fees paid to Lalime’s would decline by about $240 (20 cents times one-half of 2400 meals). The remaining $4360 is fixed cost that isn’t avoided by cutting breakfast. Cutting
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EWMBA 201a Fall 2007—Prof. Wolfram
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This note was uploaded on 09/21/2009 for the course EWMBA 201A taught by Professor Wolfram during the Fall '07 term at Berkeley.

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fr3_soln - UNIVERSITY OF CALIFORNIA HAAS SCHOOL OF BUSINESS...

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