Ralph Newkirk is considering a bid for the hot dog and soft drink concession

| February 25, 2017

Question
Service food vendor

Ralph Newkirk is considering a bid for the hot dog and soft drink concession at the 14 football games for the season. There will be 7 college games and 7 professional games. Average attendance at college games is 30,000; at professional games attendance is 60,000. Ralph estimates that he sells one hot dog and one soft drink for each two persons attending a game.

Hot dog

Soft drink

Selling price

$1.50

$1.00

Variable costs:

Hot dog

0.32

Roll

0.14

Mustard, onion, etc.

0.02

Soft drink and ice

0.22

In addition, salespeople earn a 20 percent commission on all sales. Fixed costs per game are $8,000 for rentals of heating, cooking, mixing, and cooling equipment.

The stadium management requested that bids be made in the form of royalties on sales. The highest percentage of sales bid will win the contract.

What percentage of sales can Newkirk pay as royalty to the stadium and earn $180,000 for the season? (Round to nearest one-tenth of a percentage point.)
If Newkirk bids 12 percent of sales, what income can he expect? (Is your answer consistent with your answer in requirement 1?)
Assume that Newkirk gets the concession at a royalty of 12 percent of sales. He wants to know how much margin of safety he has in two ways. He is uncertain about total attendance and about the percentage of total attendees who buy a hot dog and drink. What is his break-even point for the season, expressed as (a) total attendance assuming one hot dog and drink per two attendees, and (b) the percentage of attendees who must buy a hot dog and drink if total attendance is as expected but the number of hot dogs and drinks each buys is uncertain?
What kinds of information does Newkirk need if he is also deciding to bid for the concession at baseball games at the same stadium?

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