A restaurant prepares 200.00 pizza slices and sells them at a rate of $12.00/sli

Question

A restaurant prepares 200.00 pizza slices and sells them at a rate of $12.00/slice. Expenses for the restaurant include raw material for pizza at $5.00 per slice, $121.00 as monthly rental and $43.00 monthly as insurance. Restaurant is open only for 25 days in a month. Today there was a party at nearby office so the demand for pizza went up to 222.00 slices. Due to lack of availability vendor could not fulfill the demand and analyzed a lost sale as $6.00 per item. How much profit could the restaurant earn today?

Explanation / Answer

Solution:

First we calculate the fixed cost per day

Cfixed = 121 + 43 / 25

Note that we took denominator as 25 because restaurant is open only 25 days in a month.

Cfixed = 121 + 43 / 25

= 6.56  

Now as each of the slice has a variable cost of $5 per slice and it is sold for $12 per slice ,

therefore the profit for slice is calculated as,

$12 - $5 = $7 per slice

= $7 per slice

Now here we had a total demand of 222 slice but clearly we had a capacity of 200 slice only.

The total revenue by selling those 222 slices is calculated as:

222 * (12 - 5) = $1554

Also given they are lost sales of 222 - 200 = 22 slices.

Loss due to lost sales = 22 * 6 = $132 as it is given that lost sales was $6 per slice lost.

Now, we calculate the total profit for the day

= $1554 - $132 - $6.56 = $1415.44

  Therfore, The total profit for the day = $1415.44

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