- Length: 4 pages
- Sources: 2
- Subject: Economics
- Type: Essay
- Paper: #73518348

Overview- Julia's Food Booth is a study in capacity (how much can we produce/store / sell) in a given period of time; organization (how best can we maximize sales); supply & demand (how much of product A versus product B); inventory management; logistics; and profit and loss. We must first examine what we know, and what assumptions we must make and why.

Operational Facts:

Julia wants to earn money operating a concession stand selling pizza, hot dogs and BBQ sandwiches at 6 Tech School Home Games. From past experience, students who have done this before tell her she will sell most of her product 1 hour before the game as patrons get seated, and then again at Half Time. She cannot sell food and drink together because of athletic department rules.

Julia's fixed costs are the rental fee per game ($1,000) and the amortized cost of the warming oven (See #3) of $100. She has only $1,500 up front cash, so we assume she has made arrangements to put a down payment on the oven, or pay the fees to the athletic department after the game, based on anticipated profits. Otherwise, she could not expend money up front for the booth, the oven, and the food.

3. Julia knows she can rent a warming oven for $600, amortized out at $100/game. The oven has 16 shelves, each shelf is 3' X 4' or 12 square feet, converted to inches is: 144 square inches (1'by 1') times 12 = 1728 square inches per shelf storage area.

4. Julia's agreement with the Pizza Restaurant is that they will deliver 14" cheese pizzas twice per game, 2 hours before, and just after kick off. Each pizza will cost $6 and contain 8 slices. We are assuming this is NY Style square pizzas, or each slice of pizza 1/6 of a 14X14" pizza, or 6 divided into 196," each slice being roughly 32 square inches.

5. Julia will have to prepare the food ahead of time; we do not know if her costs given include labor to prepare or simply the raw product. Tip for pizza driver is also not included in her assumption, but will be included in our final basic estimation. We do know Julia will be happy if she clears $1,000 in profit each game, or $6,000 for the season. Initial assumption is that she will run the booth herself and perform all the labor herself as well.

6. Julia has investigated her product, storage, cost (COG), and Sales Price and finds:

Product

Storage Area

COG

Sales Price

Misc.

Pizza

1 slice = 32 sq in

1728 sq in per shelf; 54 slices per shelf; 8 slices per pie ordered, ? 6 pies per shelf

$6/pie

$.75/piece

Keystone price or $1.50/slice

Each sold pie will gross $12.00, net $6.00 after COG

Assume NY Style Square Pizza Slices; Julie believes she will sell as many slices of pizza as hotdogs and BBQ sandwiches combined

Hot Dogs

16 sq in per hot dog; 108 hot dogs per shelf

$.45/each

$1.50/hot dog; each sold hot dog will net $1.05

Julia believes she will sell twice as many hot dogs as BBQ sandwiches; we will also assume the condiments will be outside the booth for individual customer use (she did not figure these in, but we will, no one likes a plain hot dog)

BBQ Sandwiches

25 sq in per BBQ sandwich; 69 sandwiches per shelf

$.90/each

$2.25/BBQ sandwich; each sold sandwich will net $1.35

No cost of labor in preparation given

Assumptions:

1. We will assume Julia will not be selling parts of a product; no halves, quarters, etc. This means we will, at times, round for sales convenience.

2. Similarly, we will assume we cannot store parts of a product; and that since these products are perishable, we cannot stack them, and there must be adequate room to take the product from the storage area to the selling area.

3. We can interpret the pizza delivery portion of the order in two ways: if there are two deliveries from the pizza restaurant, we could assume Julia will sell 100% of her first delivery before the game, and then need restocking for half time; or we can assume she will order 50% of her pizza need prior for pre-game, and then 50% at half time. Since she is going to the trouble of having 2 deliveries, it is logical to assume the former; so that will be our basic assumption in our calculations.

4. For sales we will operate off the following formula: Sales = 2P + (HD + 1/2 BBQ) as our numerical values; knowing our storage capacity and delivery schedule for Pizza, we can then assume that Julia will likely do the following, based primarily on her storage capacity she will reserve and noting that Julia is basing assumptions on approximations of volume (units) not on dollars (price difference between items)

Warming Oven:

Part A - This assumption is based on a fill ratio of Julia's warming oven (capacity). But, now we must take into account the advice her friends have given her. The minimum she will sell is as many Slices of Pizza as Hot Dogs and BBQ Sandwiches together. And that she will sell twice as many Hot Dogs as Sandwiches. If this is the case, then the capacity of the warming oven could be a misnomer, her minimum sales would be 1 self of BBQ Sandwiches as the base, thus:

1 shelf BBQ (69 units) + 2 * 69 or 138 Hot Dog; Then, if she sells as many slices of pizza as both Hot Dogs AND Sandwiches, she would sell 69 (BBQ) + 138 (HD) = 207 slices of pizza. Her oven would not be used to capacity, but her financials would be:

Item

#Sold

Total Gross

COG

Net

Pizza

207 @ $1.50

$310.50

$160.25

$160.25

Hot Dogs

138 @ $1.50

$207.00

$93.15

$113.50

BBQ Sandwiches

69 @ $2.25

$155.25

$62.10

$93.15

Totals

$672.75

$315.50

$366.90

This scenario is obviously NOT going to work for Julia, less than $400 net per game would put her in the hole from the first game, never to recover.

1. However, since we have a full warming oven, why not figure capacity based on her statement in paragraph 2 of the scenario; "She plans to fill the over with the three food items before the game and then again before half-time." We know she cannot prepare enough Hot Dogs and BBQ Sandwiches during 2 quarters of the game, so we must assume that this product will stay warming. Now our scenario looks more optimistic.

2. Then, we will take the capacity of the warming oven, figure the number of turns (simple in this case, because we are turning 100% of the pizza twice per game). We must also assume that Julia is not planning on any left over product, especially on pizza. For a more accurate figure we would need to do at least a 10-15% left over ratio, perhaps offered at end of game at percentage off, etc. But for the time being, we then figure capacity as potential for sales per game:

54 X 2 fills or 108 slices per game; at 8 slices per pie, ? 13 pies per game

108 slices per game

108 HD per game

69 Sandwiches

108 slices per game

108 slices per game

108 HD per game

69 Sandwiches s

108 slices per game

108 slices per game

108 HD per game

69 Sandwiches

108 slices per game

108 HD per game

108 HD per game

69 Sandwiches

3. So, now our financials look:

Item

# Sold Per Game

Price Per

Gross

COG

Net

Pizza

7 X 108 = 1404

$1.50

$2,106.00

$1,053.00

$1,053.00

Hot Dogs

5 X 108 = 540

$1.50

$810.00

$243.00

$567.00

BBQ

4 X 69 = 276

$2.25

$621.00

$248.40

$372.60

Totals

$3,537.00

$1,544.40

$1,992.60

4. Now our potential looks a bit more promising and our basic Profit and Loss Per Game would look like this:

Gross Sales Per Game

$3,537.00

Costs:

Space Rental

($1,000.00)

COG

(1544.40)

Ammortized Warmer Cost

($100.00)

Misc. Costs (Pizza Tip)

($100.00) 10%

Misc. Hot Dog Accutrements

($50.00)

Total Estimated Costs

($2,794.40)

Profit/Loss Per Game

$742.60

It now appears that it is possible that Julia could make a profit per game, if she could keep up the volume working the booth. However, she is short her $1,000.00 per game goal but about 25% of NET. This could certainly be made up by more turns on product. Note: If we remove the items NOT in the scenario (Tip and Hot Dog Supplies) she is at $942.60, probably close enough to her goal; but unrealistic in reality.

Part B -- We are assuming that Julia made arrangements to pay her suppliers once she made a profit from the first game. She does not have enough funds to even cover a game if she had to pay up front. If she had to pay up…