Question

A restaurant prepares 200.00 pizza slices and sells them at a rate of $15.00/slice. Expenses for the restaurant include raw material for pizza at $6.00 per slice, $124.00 for monthly rental and monthly insurance of $20.00. Lost sale are taken as $5.00 per unhappy customer. Leftover pizza can be sold for $2.00. The 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 224.00 slices. How much profit could the restaurant earn today?

Answer 1

Solution:

As per the information given in the question we have

No. of pizza slices prepared per day = 200

Sale price per pizza slice = $ 15.00

Thus total sales per day = 200 * $ 15 = $ 3,000

Raw material cost per pizza slice = $ 6

Thus total raw material cost per day = 200 * $ 6 = $ 1,200

As per the Information given in the question we have

Demand for Pizza slices = 224        ;         Pizza slices actually prepared = 200   ;

Cost of lost sales = $ 5

Hence cost of Lost sales per day = ( Demand for Pizza slices – Pizza slices actually prepared ) * Cost of lost sales

= ( 224 – 200 ) * $ 5 = $ 120

Thus cost of lost sales per day = $ 120

As per the Information given in the question we have

Monthly rental = $ 124   ; Monthly Insurance = $ 20

No. days the restaurant is open in a month = 25

Thus total Fixed cost per month = Monthly rental + Monthly Insurance

= $ 124 + $ 20 = $ 144

Fixed cost per day = Total Fixed cost per month / No. days the restaurant is open in a month

= $ 144 / 25 = $ 5.76

Thus we have

Total Sales per day = $ 3,000   ;    Raw material cost per day = $ 1,200   ;

Cost of lost sales per day = $ 120   ; Fixed cost per day = $ 5.76

Thus the profit made by the restaurant per day is calculated as follows :

Profit = Total Sales per day – Raw material cost per day – cost of lost sales per day – Fixed cost per day.

= $ 3,000 - $ 1,200 - $ 120 - $ 5.76

= $ 1,674.24

Thus the profit that could be earned by the restaurant today = $ 1,674.24

= $ 1,674 (when rounded off to the nearest dollar)