Pizza Pies Limited has the following value chain for its pizzas. Boxes are designed by Shala Designers Inc. and printed and delivered by Rodoes Printing Co. for $.95 per box. The pizzas are made in the stores with fresh ingredients and baked in the ovens for a total cost of $3.80, including labor, ingredients, and overhead. The pizza delivery costs $1.35. Pizza Pies needs to reduce the price of its pizza to $6.50 to meet local demand. However, it desires a 10 percent markup for profit.
a. What is the target cost? By how much will Pizza Pies need to cut costs in order to achieve the target cost?
b. Identify places in the Pizza Pies Limited value chain where possible savings could be achieved to meet the target cost.