Question

Pete’s pizzeria makes and sells pizza for $0.79. Each pizza costs $0.19 for materials. Labor to make and sell the pizza is $8.00 per person per hour or $64 a day (8-hour workday). Fixed costs for rent, utilities, etc. average $120 per day. A minimum of two workers (one to cook and one to sell) are needed. If the demand is more than 500, they need an additional person. In fact, each additional 500 units of demand require another person be added. What is the company's profit per day if they sell an average of 420 pizzas a day?

1. Build a one-way table to see how changing demand affects labor costs, material costs (variable costs) and profit. a) Demand range is 260-1300 b) Increment = 80

2. Build a two-way table to see influence of material cost (per unit) and demand on profit. a) Demand range (260, 1300). Increment = 80 b) Material cost range ($0.09, $0.35). Increment = 0.02

3. Scenario analysis. Considering following two scenarios:

a) Competitor: A competitor opens nearby. The demand would drop to 350 pizzas a day, and the price will be cut to $0.7

b) Growth: Business is good and need to expand. Pete’s pizzeria might be selling 1200 pizzas a day and decide to install some more automated cooking equipment that would increase the daily fixed cost to $135 but means each additional employee can handle up to 1500 pizzas a day.

Using “Scenario Manager” to set up these two scenarios and effects on Labor cost and Profits. Please change the cell names before scenario analysis to show the meaningful names in the generated table.

Demand	420
Price	$0.79
Material cost	$0.19
Min. # employees	2
Pizzas/day/person	500
Rate/day/person	$64.00
# employees needed	2
Fixed costs/day	$120.00
Revenue	$331.80
Variable costs	$79.80
Labor costs	$128.00
Fixed costs	$120.00
Profit/(loss)	$4.00

Profit/(loss) $4.00

Answer 1