Question

Andrea Kimball has recently acquired a franchise of a well-known fast-food restaurant chain. She is considering a special promotion for a week during which hamburger prices would be reduced $0.40 from the regular price of $1.09 to $0.69. Local advertising expenses for this special promotion will amount to $4,500. Andrea expects the promotion to increase sales of hamburgers by 20% and French fries by 12%, but she expects the sales of chicken sandwiches to decline by 8% (because some customers, who otherwise may have ordered a chicken sandwich, will order a hamburger instead because of its attractive low price). The following data have been compiled for sales prices, variable costs and weekly sales volumes: Product Sales Price Variable Costs Sales Volume Hamburgers $1.09 $0.51 20,000 Chicken sandwiches 1.29 0.63 10,000 French fries 0.89 0.37 20,000 Evaluate the expected impact of the special promotion on sales and profits. Should Andrea go ahead with this special promotion

Answer 1

A.Normal week

Total Income Normal Week $52,500

Total Cost Normal Week $23,900

Profit Normal Week $28,600

Sales week

Total Income Sales Week $48,364

Total Cost Sales Week $26,324

Profit Sales Week $17,540

B. No

Step-by-step explanation:

Calculation to Evaluate the expected impact of the special promotion on sales and profits

NORMAL WEEK

A. Calculation for Total Income Normal Week

Hamburger Sales= $1.09 X 20,000

Hamburger Sales = $21,800

Chicken Sales=$1.29 X 10,000

Chicken Sales= $12,900

Fry Sales= .89 X 20,000

Fry Sales= $17,800

Total Income Normal Week= $52,500

($21,800+$12,900+$17,800)

Calculation for Total Cost Normal Week

Hamburger Cost= $ .51 X 20,000

Hamburger Cost= $10,200

Chicken Cost= $ .63 X 10,000

Chicken Cost= $ 6,300

Fry Cost= .37 X 20,000

Fry Cost= $ 7,400

Total Cost Normal Week= $23,900

($10,200+$ 6,300+$ 7,400)

Calculation for Profit Normal Week

Profit Normal Week=$52,500-$23,900

Profit Normal Week= $28,600

SALES WEEKS

Calculation for Total Income Sales Week

Hamburger Sales =20,000 X 1.20 (20% increase) Hamburger Sales = 24,000

Hamburger Sales =$ .69 X 24,000

Hamburger Sales = $16,560

Chicken Sales= 10,000 X .92 (8% decrease)

Chicken Sales=$9,200

Chicken Sales= $1.29 X 9,200

Chicken Sales= $11,868

Fry Sales= 20,000 X 1.12 (12% increase)

Fry Sales= 22,400

Fry Sales= .89 X 22,400

Fry Sales = $19,936

Total Income Sales Week=$48,364

($16,560+$9,200+$11,868+$19,936)

Calculation for Total Cost Sales Week

Hamburger Cost =$ .51 X 24,000

Hamburger Cost = $12,240

Chicken Cost =$ .63 X 9,200

Chicken Cost = $ 5,796

Fry Cost= .37 X 22,400

Fry Cost= $ 8,288

Total Cost Sales Week=$26,324

($12,240+$ 5,796+$ 8,288)

Calculation for Profit Sales Week

Profit Sales Week = $22,400

($48,364-$26,324)

Less Advertisement $4,500

Profit Sales Week=$17,540

($22,400-$4,500)

B. Based on the above Calculation Andrea should NOT go ahead with this special promotion reason been that their is tendency that Andrea would lose profit with the special promotion.