Chapter 10, Problem 10.13MA

Summary Introduction

Case summary:

Company T is one of the biggest suppliers of chicken and beef in Country U, where they supply over 100,000 herds of cattle and 40-plus million chickens per week. Their primary distribution channels are the supermarket meat departments. Now, the company wants to expand their distribution into convenience stores. In Country U, there are more than 150,000 gas stations and convenience stores where Company T wanted to sell hot buffalo chicken bites (that are nearer to the checkout).

This will be the promising channel where the sales increase significantly at those retail outlets and profit margins on the foods that are prepared are higher than the raw materials that are sold at the grocery store. Now, Company T has to hire 10 more sales representatives at a salary of $45,000 each to enlarge into the distribution channel because many of the stores are separately owned. Each of the convenience stores is expected to produce an average of $50,000 as revenue for Company T.

To determine: Whether the increase in the sales would need to break even on the increase in the fixed cost for hiring the new sales representatives.

Characters in the case:

• Company T
• Country U

Introduction:

A sale is a contract between two parties to buy and sell goods. Here, one buys the goods and the other sells the goods. The buyer receives goods and seller sells goods.

A fixed cost is a cost or expense that does not change with a decrease or increase in goods or services produced. It is the cost which has to be paid by the company, excluding other business activities.