You own and manage a pretzel and lemonade concession cart. Youdecide that you want to sell your products at a NASCAR® raceweekend in Loudon, NH. The track charges $1,000 in rent for theentire weekend. Food and beverage costs run about 20% of sales. Youhave to pay an employee $400 to run the cart over the weekend. Youprovide incentives of 5% of sales. Your accountant allows you totake $250 in depreciation expenses for this weekend as well. Let’spretend you use the cart for only one weekend per year (therefore,this one weekend is your annual sales and expenses). The car costsyou $1,250 to purchase and you expect to use it for 5 years (withdepreciation of $250 per year). Assume a required rate of return of15%. Question 1 – Find Accounting and Cash Flow Breakeven ? If theaverage lemonade or pretzel sale is $5/each, how many items willyou have to sell to reach accounting breakeven? ? Accounting UnitBreakeven ? Cash Unit Breakeven ? How many units do you need tosell cash flow breakeven? (Assume no taxes). Question 2 – CalculateDegree of Operating Leverage You estimate that your sales for theweekend will either be “average” or “great”: • Average: 500 unitssold • Great: 750 Units sold Calculate the degree of leverage atAVERAGE and GREAT sales? ? Degree of Operating Leverage ? = 1 +Fixed Expenses/OCF DOL = 1 + (FC/OCF) Question 3 – Test youranswer! From question 2, increase unit sales 10%. Show that yourOCF went up by the degree of operating leverage suggested. Example.Say you calculated a DOL of 2.5. An increase in sales of 10% wouldsuggest OCF would increase 25%.