The potential profitability of the proposed pizza franchise

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Reference no: EM131554677

Tom and Mike graduated with business degrees in 2016, however, neither could find a career job since graduating. Tom, a finance major, worked part time at a local Pizza Hut, and decided to start his own pizza business at the local Mall. Tom decided to invest $50,000 in a Big Al's pizza franchise which would be located in the food court of the Mall. Before Tom invested, he got Mike, an unemployed marketing major, to become his partner in the enterprise. Tom gathered cost information and Mike conduccted a marketing survey to determine the potential profitability of the proposed pizza franchise.

Big Al's sells a large 20" pizza and a smaller lunch size 12" pizza. The results of Mike's market survey and Tom's cost analysis are listed in Table 1 Pizza Franchise Data Summary.

Fixed costs include the monthly mall rent, franchise fee, oven rentals, labor costs, and the monthly payments on a $50,000 loan at 6% interest for 48 months. The variable costs include the pizza sauce and shells. Although there is an unlimited supply of pizza shells, pizza sauce is made in advance and limited to 32,000 ounces per month. Based on the above information, what is the optimum profit Tom and Mike can expect from this Franchise?

Table1: Pizza Franchise Data Summary Fixed Cost Month

Quantity Demanded Mall Lease $ 3,600

Price 20" 12" Franchise Fee $ 800

1 4070 3350 20" oven $ 1,100

2 3940 3100 12" oven $ 700

3 3810 2850 Labor Cost

4 3680 2600 Hours/month 360

5 3550 2350 1 shift Mrg-$16/hr 16

6 3420 2100 2 helpers- $12/hr 24

7 3290 1850 Loan ($50,000)

8 3160 1600

9 3030 1350 Variable Cost Per Pizza

10 2900 1100 Pizza Shells

11 2770 850 20" Pizza $1.00

12 2640 600 12" Pizza $0.60

13 2510 350 Pizza Sauce

14 2380 100 20" pizza $1.90

15 2250 12" Pizza $1.00

16 2120

17 1990 Constraints Ounces/Month

18 1860 pizza sauce < or = to(less than or equal to) 32,000

19 1730

20 1600

21 1470

22 1340

23 1210

24 1080

25 950

Reference no: EM131554677

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