Reference no: EM132706961

The store operates 8 hours per day, 320 days per year. Each slice of pizza is sold at a price of $1.25. The cost of raw ingredients is roughly $1.00 per slice. The store's rent, utility costs, and other overhead costs add up to $10,000 per month. The cost associated with each employee (salary, benefits, etc.) is $3,000 per month, and the store owner has decided not to make any personnel reduction or increase in the foreseeable future. As an attempt to attract more customers, the store has a "promotion day" once a month over the next 12 months, where they offer general-purpose $20 gift cards to 3.5% of customers that visit the store on that day to be selected randomly. These gift cards can be used anywhere and do not necessarily have to be used at this store. Moreover, the store will not announce which day of the month will be the promotion day, hence the demand on promotion days is expected to be similar to any other day. The requested loan amount will be equal to the estimated loss over the next 12 months. Therefore, you need to first estimate how much the store will lose in this 1-year period. Due to lack of historical sales data, and given that today is the bank's deadline for emergency loan applications, you decide to estimate the loss as follows:

Problem a) Counting the number of customers and pizza slices sold in a 10-minute interval, it was determined that 40 slices of pizza were sold to 20 customers during this time. Estimate: (i) the number of slices sold per month, and (ii) cost of gift cards per month. The assumption is that the sales rate is constant throughout the day and across days over the next 12 months.

Problem b) Given your estimates from part (a), estimate how much the store will lose over the next 12 months.