Given: Check Average = $7.50 Drive thru hours: 11AM-2PM and 5PM-8PM=100 cars 7AM

Question

Given:

Check Average = $7.50

Drive thru hours:

11AM-2PM and 5PM-8PM=100 cars

7AM-11Am=75 cars per hour

2PM-5PM, 8PM-11PM = 85 cars per hour

Open 16 Hours per day

Open 311 Days a year

Labor is $9 per hour on average

Adding one Person will add 25% Throughput between 11Am-2Pm, and 5PM-8PM, and 10% other times

Adding 2 people will add 10% Throughput Between 11Am-2Pm, and 5PM-8PM, and 5% other times

Adding 3 people will add 5% Throughput Between 11Am-2Pm, and 5PM-8PM, and 0% other times

Questions:

A) Labor cost is 20% on normal sales and profits are 15% on Normal sales. All other costs are constant and do not change. New labor added only affects the incremental sales. 15% applies to normal sales and incremental sales. Savings on additional sales from labor needs to be added to normal 15% profits on additional sales.

Explanation / Answer

From the Drive through list we could find the total number of cars for a normal day as follows—

7 AM – 11 AM = 75 cars per hour. So, total number of cars = 75 * 4 = 200.

11 AM – 2 PM = 100 cars per hour. So, total number of cars in this period = 100 * 3 = 300

2 PM – 5 PM = 85 cars per hour. So, total number of cars = 85 * 3 = 255

5 PM – 8 PM = 100 cars per hour. So, total number of cars = 100 * 3 = 300

8 PM – 11 PM = 85 cars per hour. So, total number of cars in this period = 85 * 3 = 255

Therefore, the total number of cars that check in a normal day is, (200 + 300 + 255 + 300 + 255) = 1310.

Thus, the total revenue for 1 normal day is, $7.50 * 1310 = $9,825.

Similarly, the total number of cars for a normal year (where it is open for 311 days) would be, 1310 * 311.

So, the total revenue for a whole year is, $7.50 * 1310 * 311 = $3,055,575. That is more than 3 million.

The labor cost is 20% of the normal sale for a year and so that the profit is 15%.

So, for a normal year, the labor cost is, 20% * $3,055,575 = $611,115.

Therefore, at $9 per hour on average for labor, we get the number of labor used, L = $611,115 / $9 67,902.

And the profit is, 15% * $3,055,575 = $458,336.25.

Now, it is given that the addition of one person will add 25% throughput between 11 AM – 2 PM and 5 PM – 8 PM and 10% for other times.

So, if the firm decides to add 1 extra person, then the new amount of sales would be,

7 AM – 11 AM = 4 * (75 + 10% * 75) = 4 * 82.5 = 330

11 AM – 2 PM = 3 * 125 = 375

2 PM – 5 PM = 3 * (85 + 10% * 85) = 3 * 93.5 280

5 PM – 8 PM = 3 * 125 = 375

8 PM – 11 PM = 3 * (85 + 10% * 85) 281

Therefore, in this new situation, the new number of cars in a typical day would be,

(330 + 375 + 280 + 375 + 281) = 1641

So, the increment in the number of cars is, (1641 – 1310) = 331

For this amount incremental sales, the revenue earned by the firm in a day would be, $7.50 * 331 = $2,482.50

And the amount of incremental revenue earned in a year would be, $2,482.50 * 311 = $772,057.50

Now for this incremental sale, the labor cost is 20% and profit is 15%.

The extra labor cost per year would be, 20% * $772,057.50 = $154,411.50

And the profit on the incremental sales would be, 15% * 772,057.50 = $115,808.625.

Thus, the total amount of profit after the imposition of this policy is, $(458,336.25 + 115,808.625) = $574,144.875.

Similarly, we could find the amount of profit for other options as stated above.

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