Final answer:
Wally and Cabo's catering business faces a similar financial structure to the Yoga Center example, with a fixed monthly cost for kitchen rental and an income of $70 per catered event. To determine profitability, they must calculate their fixed and variable costs against their revenue.
Step-by-step explanation:
Wally and Cabo are venturing into the catering business, facing expenses and potential income similar to those encountered by businesses such as the Yoga Center discussed in your example. To understand the viability and financial structure of their business, we must consider fixed costs and variable costs.
They have a monthly fixed cost of $350 for renting a kitchen and variable costs that are currently unspecified but can be assumed to include the costs of ingredients, labor, and transportation for each event they cater.
Based on the given information, we can calculate their revenue by multiplying the number of events by $70, the charge per event. However, it's essential to remember that earning a profit also depends on the number of events catered and the variable costs per event. If Wally and Cabo do not cater any events, they will still incur the fixed kitchen rental costs, resulting in a loss for that month.
Comparing this to the Yoga Center example with three scenarios - no clients, break-even revenue, and a scenario of partial loss - we can infer that Wally and Cabo's break-even point will be the number of events they need to cater to cover both their fixed and variable costs. It's crucial to calculate fixed costs, variable costs, and revenues to make informed business decisions regarding operational viability.
To summarize using the Yoga Center scenarios: No catering events mean losses equal to fixed costs, a number of events that cover fixed costs but not variable costs (or only just cover them) mean break-even or losses, and sufficient events to cover both fixed and variable costs mean a profit. In real business practice, Wally and Cabo must also account for additional random costs, marketing, taxes, and contingencies that can affect their overall profit margin.