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10.9 Cases and Problems

Learning on the Web (AACSB)

Breaking Even on Burgers

You and your business partner plan to open a gourmet burger restaurant. Your partner estimated the new business will sell a hundred fifty thousand burgers during its first year and a half of operations. You want to determine the number of burgers you must sell to break even during this period.

Here are the figures you know so far:

  • The variable cost for each burger is $0.97 each.
  • The fixed cost of making burgers for eighteen months is $140,000 (this includes costs such as rent, utilities, insurance).
  • You will sell your burgers for $1.99 each.
  • At the $1.99 per-unit selling price, how many burgers will you have to sell to break even?

Part 1: Using the above information, manually calculate the breakeven number of burgers. How close is the breakeven number of burgers to your partner’s sales estimate of one hundred fifty thousand burgers? How confident are you that your restaurant will be profitable?

Part 2: Now, recalculate the breakeven number of burgers using a higher selling price. Pretend that your likely customers are burger fanatics and will pay $2.79 for a burger (rather than $1.99). Also pretend that the variable cost for each burger and your fixed costs won’t change (variable cost per burger is still $0.97 and fixed costs are still $140,000). Manually calculate the number of burgers you must sell to break even at this higher selling price. Are you now more confident that the business will succeed?

Part 3: Without recalculating breakeven, answer these two questions:

  1. If the variable cost for each burger went down from $0.97 to $0.80 per burger (and your selling price stayed at $1.99), would you need to sell more or fewer burgers to break even?
  2. If fixed costs went down from $140,000 to $100,000 (and your selling price stayed at $1.99 and variable cost per burger returned to $0.97), would you need to sell more or fewer burgers to break even?

Part 4: The information for this problem was supplied by Weatherhead School of Management at Case Western Reserve University on its Web site (http://connection.cwru.edu/mbac424/breakeven/BreakEven.html). Go to this Web site and check your answers, using the breakeven calculator provided.

Career Opportunities

Being a “Big Idea” Person

Imagine a career in which you design the products people use every day. If you’re a “big idea” person, have an active imagination, have artistic flair, and possess the ability to understand how products function, then a career in product design and development might be for you. To learn what opportunities are available in this field, go to the Job Bank section of the Product Development and Management Association’s Web site (http://www.pdma.org/job_bank.cfm) and click on “View Posted Jobs.” Explore the various job openings by clicking on a position (to highlight it); and then clicking on the “View Job Details” button at the bottom of the screen. Find a position that interests you and look for answers to these questions:

  1. What’s the job like?
  2. What educational background, work experience, and skills are needed for the job?
  3. What aspects of the job appeal to you? What aspects are unappealing?
  4. Are you cut out for a career in product design and development? Why, or why not?

Ethics Angle (AACSB)

Who’s Getting Fat from Fast Food?

Product liability laws cover the responsibility of manufacturers, sellers, and others for injuries caused by defective products. Under product liability laws, a toy manufacturer can be held liable if a child is harmed by a toy that’s been marketed with a design flaw. The manufacturer can also be held liable for defects in marketing the toy, such as giving improper instructions on its use or failing to warn consumers about potential dangers. But what if the product isn’t a toy, but rather a fast-food kid’s meal? And what if the harm isn’t immediately obvious but emerges over time?

These questions are being debated in the legal and health professions (and the media). Some people believe that fast-food restaurants should be held responsible (at least in part) for childhood obesity. They argue that fast-food products—such as kid’s meals made up of high-calorie burgers, fried chicken fingers, french fries, and sugary soft drinks—are helping to make U.S. children overweight. They point out that while restaurant chains spend billions each year to advertise fast food to children, they don’t do nearly enough to warn parents of the dangers posed by such foods. On the other side of the debate are restaurant owners, who argue that they’re not the culprits. They say that their food can be a part of a child’s diet—if it’s eaten in moderation.

There’s no disputing that 15 percent of American children are obese and that fast-food consumption by children has increased by 500 percent since 1970. Most observers also accept the data furnished by the U.S. Surgeon General: that obesity in the United States claims some three hundred thousand lives a year and costs $117 billion in health care. The controversy centers on the following questions:

  1. Who really is to blame for the increase in obesity among U.S. children?
  2. Under current consumer-protection laws, is fast-food marketing aimed at children misleading?
  3. Should fast-food restaurants be held legally liable for the health problems associated with their products?

What’s your opinion? If you owned a fast-food restaurant, what action (if any) would you take in response to the charges leveled by critics of your industry?

Team-Building Skills (AACSB)

The Great Idea

Get together with members of your team and brainstorm ideas for a new-to-the-market product. Begin the brainstorming session by asking each person to write an idea on a sticky note. Post the idea and repeat the process four times. After the team has evaluated and discussed the ideas, all members should vote. Each gets ten votes, which can be placed on one idea or spread over many. Once the voting ends, add up the votes received by each idea and declare one idea the winner.

Write a group report that answers the following questions:

  1. Product Idea

    • What is the idea?
    • How would the idea work?
    • Who would our customers be?
    • What unmet need does it fill?
  2. Industry

    • What is the product’s industry, segment, and niche?
    • Is the industry growing or contracting?
    • Who are our major competitors?
    • How does our product differ from those of our competitors?
    • What opportunities exist in the industry? What threats?
  3. Product

    • What will the product look like?
    • What features will it have?
    • How will customers benefit from our product?
    • Why will customers buy the product from us?
    • Why will our product be financially successful?

The Global View (AACSB)

What to Do When the “False” Alarm Goes Off

If someone on the street tried to sell you a “Rolex” watch for $20, you’d probably suspect that it’s a fake. But what about a pair of New Balance athletic shoes? How do you know they’re authentic? How can you tell? Often you can’t. Counterfeiters are getting so good at copying products that even experts have trouble telling a fake from the real thing. What if the counterfeit product in question was a prescription drug? Even worse, what if it had been counterfeited with unsterile equipment or contained no active ingredients?

How likely is it that you’ll buy a counterfeit product in the next year? Unfortunately, it’s very likely. To learn a little more about the global counterfeiting business, go to http://www.exploringbusinessonline.com to link to the BusinessWeek and Washington Post Web sites. Read the articles “Fakes!” and “Counterfeit Goods That Trigger the ‘False’ Alarm.” After you read these articles, answer the following questions:

  1. How has the practice of counterfeiting changed over time? What factors have allowed it to escalate?
  2. What types of products are commonly counterfeited, and why might they be unsafe? What counterfeit products are particularly dangerous?
  3. How do the counterfeiters get goods onto the market? How can you reduce your chances of buying fake goods?
  4. Why is counterfeiting so profitable? How can counterfeiters compete on price with those making the authentic goods? How do counterfeiters harm U.S. businesses?
  5. What efforts are international companies and governments (including China) making to stop counterfeiters?
  6. If you know that a product is fake, is it ethical to buy it?