Gail Sawyer has just started a new catering business in Dallas, Texas. Instead of establishing a fixed menu, she has decided to make whatever the customer wants until she knows how well different dishes will be received.
Gail has been invited to bid on the rehearsal dinner for the wedding of the mayor's son. If she wins the bid and gets the job, some of the most prominent people in Dallas will taste her food. She can't get better advertising than that! The mayor has decided on a menu of peanut soup, baby field greens salad with fresh mozzarella, grilled salmon, bacon-wrapped fi let mignon, baby asparagus with hollandaise sauce, and white chocolate crème brulée. Gail estimates that the selected menu will require $30 of food per person. She has been quoting prices based on a 60% markup on food cost.
a. What is the minimum price per person that Gail should quote for the job?
b. What price would Gail need to charge to achieve her desired 60% markup?
c. Assume the mayor has already received a bid of $45 per person and has told Gail that he will not pay more than that. If Gail agreed to a price of $45 per person for the desired menu, what markup would she realize?
d. If Gail met the lower price and took the job, what might be some potential consequences, both good and bad?