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Sanjanas Sweet Shoppe operates on the boardwalk of a New England coastal town. The store only opens for the summer season and the business is heavily dependent on the weather and the economy in addition to new competition. Sanjana Sweet, the owner, prepares a budget each year after reading long-term weather forecasts and estimates of summer tourism. The budget is a first step in planning whether she will need any loans and whether she needs to consider adjustments to store staffing. Based on expertise and experience, she develops the following:

	Gross Margin per Customer
Scenario	(Price Cost of Goods)			Number of Customers
Good		$6.4		44,000
Fair		5.4		34,000
Poor		1.8		29,000

Sanjana assumes, for simplicity, that the gross margin and the estimated number of customers are independent. Thus, she has nine possible scenarios. In addition to the cost of the products sold, Sanjana estimates staffing costs to be $44,000 plus $2 for every customer in excess of 34,000. The marketing and administrative costs are estimated to be $12,700 plus 3 percent of the gross margin.

Required:

Prepare an analysis of the possible operating income for Sanjana similar to that in Exhibit 13.15. What is the range of operating incomes?

Exhibit 13.15 Spreadsheet Analysis of Alternative Budgeting Scenarios G Sales Price Sales Quantity Cost of Revenue Goods Sold Gross Margin Marketing & Admin. Operating Profit $ 40 $ 45 $50 150,000 $6,000,000 $3,600,000 $2,400,000 $ 1,483,500 $ 916,500 150,000 $ 6,750,000 $3,600,000 $3,150,000 $1,483,500 $ 1,666,500 150,000 $ 7,500,000 $3,600,000 $3,900,000 $1,483,500 $ 2,416,500 $ 40 $ 45 $ 50 160,000 $ 6,400,000 $3,840,000 $2,560,000 $1,506,000 $1,054,000 160,000 $ 7,200,000 $3,840,000 $3,360,000 $1,506,000 $1,854,000 160,000 $ 8,000,000 $3,840,000 $ 4,160,000 $1,506,000 $ 2.654.000 $ 40 $ 45 $ 50 170,000 $ 6,800,000 $ 4,080,000 $2,720,000 $1,528,500 $ 1,191,500 170,000 $ 7,650,000 $ 4,080,000 $3,570,000 $1,528,500 $ 2,041,500 170,000 $ 8,500,000 $ 4,080,000 $4,420,000 $1,528,500 $ 2,891,500 Gross Margin Gross Margin Operating Costs Marketing & Admin Operating Profit (Loss) 1.8 - 0 Poor Fair Good Poor Fair 5.4| 6.4 1.8 $ $ . . Number of Customers 29,000 29,000 29,000 34,000 34,000 34,000 44,000 44,000 44,000 Good Poor 6.4 1.8 5.4 6. 4 Fair Good $

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