Question

In: Accounting

A restaurant prepares 200.00 pizza slices and sells them at a rate of $10.00/slice. Expenses for...

A restaurant prepares 200.00 pizza slices and sells them at a rate of $10.00/slice. Expenses for the restaurant include raw material for pizza at $4.00 per slice, $122.00 as monthly rental and $44.00 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 227.00 slices. Due to lack of availability vendor could not fulfill the demand and analyzed a lost sale as $5.00 per item. How much profit could the restaurant earn today?

Solutions

Expert Solution

Step 1: Apportionment of Sales and Costs on daily basis to find out profit vendor could earn today

Since the vendor could not fulfill the demand of 227 Pizzas he might have sold all of his available 200 pizza slices.

So his sales for the day would be 200x$10 = $2000.

The costs for preparing 220 Pizza Slices is as follows:

Raw material Cost = $4x200 = $800

Rental charges per working day = $122/25 = $4.88

Insurance Charges = $44/25 = $1.76

Total costs for a day = 800+4.88+1.76 = 806.64

Therefore Profit per a day = $2000 - $806.64 = $1193.36

The profit of 1193.36 is for 200 pizza slices per day. So profit for a single item will be $1193.36/200 = 5.9668.

Note: Insurance and monthly rental are calculated only for 25 days beacuse costs cannot be apportioned to a non working day because if apportionment to a non working day happens then the working day share of cost is reduced which inflates our daily profit which is not correct.

Conclusion: The profit that could be earned by restaurant today is $5.9668 per item or $1193.36


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