Sal's Cupcake Factory (khanacademy.org/downloads/cupcakes.

xlsb)
Investment in Factory $1,000,000 Price/Quantity Sensitivity
Annual Capacity 1,000,000 cupcakes/year
300,000 400,000 500,000 600,000
Cost per cupcake $ 1.00 700,000 800,000 900,000 1,000,000
Price charged per cupcake $ 3.00
Cupcakes sold in a year 500,000

Revenue 1,500,000
Cost of goods sold (500,000)
Gross profit 1,000,000
Overhead (500,000) 900
0
.1 .20 30 0 0 0 600,00
Operating income 500,000 $1 $1 $1. $1.4 1.5 1.6 .70 .80 .90 00 0 0 0 300,000
$ $ $1 $1 1 2. .1 .2 .3 40 0 0 0
$ $ $2 $2 2 2. .5 .6 .7 80
$ $ $2 $ 2 2 2 .
$ $

Capacity utilization 50% Quantity

Return on asset 50% 300,000 400,000 500,000 600,000 700,000
$1.10
$1.20
$1.30
$1.40
$1.50
$1.60
$1.70
$1.80
$1.90
Price $2.00
$2.10
$2.20
$2.30
$2.40
$2.50
$2.60
$2.70
$2.80
s/cupcakes.xlsb)
ty Sensitivity
500,000 600,000
900,000 1,000,000

900,000
600,000
300,000
20 .30 .40 50 0 0 0
$2 $2 $2. $2.6 2.7 2.8
$ $

800,000 900,000 1,000,000

Sal's Cupcakes Imran's Cupcakes
Investment in Factory $1,000,000 Investment in Factory $1,500,000
Annual Capacity 1,000,000 Annual Capacity 2,000,000
Cost per cupcake $ 1.00 Cost per cupcake $ 0.90
Price charged per cupcake $ 3.00 Price charged per cupcake $ 3.00
Cupcakes sold in a year 500,000 Cupcakes sold in a year 300,000

Revenue 1,500,000 Revenue 900,000

Cost of goods sold (500,000) Cost of goods sold (270,000)
Gross profit 1,000,000 Gross profit 630,000
Overhead (500,000) Overhead (700,000)
Operating income 500,000 Operating income (70,000)

Capacity utilization 50% Capacity utilization 15%

Return on asset 50% Return on asset -5%

Aggregate Capacity 3,400,000

Aggregate Demand 1,000,000
Aggregate Utilization 29%
Aggregate Returan on Assets 17%
Vikram's Cupcakes
Investment in Factory $500,000
Annual Capacity 400,000
Cost per cupcake $ 1.10
Price charged per cupcake $ 3.00
Cupcakes sold in a year 200,000

Revenue 600,000
Cost of goods sold (220,000)
Gross profit 380,000
Overhead (300,000)
Operating income 80,000

Capacity utilization 50%

Return on asset 16%