Jack Ma’s Food Truck
Jack Ma has a food truck, selling pulled pork sandwich in Salt Lake City. The sandwich comes in a combo with coleslaw, baked beans, and French fries and is priced at $12. The food truck has variable costs, which included the cost of the food, clamshell packaging, and variableoverhead. Variable costs are 40% of the revenues. There is no labor cost as Jack Ma drew no wage or salary.
On a typical day, Jack serves between 75 and 125 patrons, with an average of 100. Fixed costs include items such as gas for the generator, maintenance, business licenses, and truck depreciation. These costs total $10,000 per year. The operational year for the food truck is 180 days. Corporate income tax rates for small businesses are approximately 20% around that time.Jack recently just received a request to bring their truck to a State Fair event held in the nearby city of Provo, located 45 miles south of Sale Lake City. When Jack brings his truck to special events he does not serve his usual pulled pork sandwich combo. He serves only the sandwich, with no beans, coleslaw, or French fries. This enables him to serve customers much more quickly and to reduce their price to $9 per serving. It also let him replace his expensive clamshell packaging with a much cheaper foil wrapping. With fewer side dishes and less expensive packaging, variable costs would be reduced by $1.90 per customer when compared to his normal menu.The State Fair event looks great on paper: the promoters noted that 700 attendees were expected. Jack expects 35% of attendees would purchase food, not necessarily from him, but from one of the food vendors at the event. He would use this ratio to estimate the number of potential customers. He would then divide his estimate for potential customers by the number of vendors serving the event. If he is the only vendor, he would get all of the potential customers, if there were two vendors, he expected to get 50% of the food-buying customers.There are several other cost considerations related to the Provo event. First, the event organizers suggest a donation of $100. Second, his food truck ran on propane, and the 90 miles round trip to Provo would add $100 to his typical fuel costs. All of these costs would be avoided if he stay home in Salt Lake City.1. If Jack Ma wish to make a $100,000 profit for the year (after tax), how many pulled pork sandwiches must he sell each day at Salt Lake City?2. Prepare a contribution-format income statement for one day’s business at the food truck based on optimistic, realistic, and pessimistic projections for a regular, non-event day in Salt Lake City.3. Prepare a contribution-format income statement for the State Fair event based on an optimistic projection (no onsite competitors), a conservative projection (one onsite competitor), and a pessimistic projection (two onsite competitors).4. Would you recommend he stay in Salt Lake City for the day or go to the State Fair event in Provo
Jack Ma’s Food Truck