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1- Is Janice using marginal cost and marginal revenue correctly in her analysis? Explain the errors in her analysis, if any
2- a. Calculate the breakeven number of additional customers for each added hour of operation up to 4am.
Breakeven customers for a time period = added cost for that time period divided by CM per customer.
Contribution Margin (CM) is sales revenue minus variable cost. CM is usually per unit of output, but it can also be found for other cost objects. In this case, we use the CM/customer. CM/customer is the price of goods sold minus the cost of goods sold to the average customer.
b. Calculate the breakeven number of additional customers for an entire year, assuming (i) a closing time of 4am and then (ii) your recommended closing time, if it differs from 4am.
c. Find the safety margin on new customers for the year. [Hint: For the per-year analysis, remember to account for the cost of the security upgrade. Use straight- line depreciation as a measure of the fixed cost of the security upgrade, and then
add the cost of overtime labor for the additional hours of business for each of the 360 business days in the year.]
Safety margin = expected number of added customers minus breakeven number of added customers.