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Donut Franchise 1

GMAT-EMVEXP

Sally invests \$20,000 in a donut franchise and plans to operate it herself from a small storefront for one year and then calculate her profit. Along with her \$20,000 initial investment, she is estimating the cost of operation (ingredients plus overhead) to be \$250 for every thousand donuts she sells. She plans to stick to this estimate by making adjustments as needed along the way. Her total investment for the first year includes both the \$20,000 and the cumulative cost of operation.

She has decided to sell donuts at various prices, but on average she will ensure that she receives 75 cents per donut, or \$750 per thousand donuts sold, in revenue. She has no other sources of revenue.

This graph shows Sally's revenue, total investment and profit.

Sally breaks even when her accumulated revenue is equal to her total investment. This happens when she has sold


donuts, and her profit at this point is


dollars.