Mark's Hamburger is a small fast-food shop in a busy shopping center that operates only during lunch hours. Mark Thorpe, the owner and manager of the shop, is confused. On some days, he does not have enough hamburgers to satisfy customer demand. On other days, he has more hamburgers than he can sell. When he has excess hamburgers, he has no choice but to dump them. Usually, Mr. Thorpe prepares about 300 hamburgers before the busy lunch hour. The product cost per hamburger is approximately $1.50 and the sales price is $4.50 each. Mr. Thorpe pays general, selling, and administrative expenses that include daily rent of $80.00 and daily wages of $50.00.
Required
a. Prepare an income statement based on sales of 240 hamburgers per day. Determine the cost of wasted hamburgers if 300 hamburgers were prepared in advance.
b. Prepare an income statement assuming that 360 customers attempt to buy a hamburger. Since Mr. Thorpe has prepared only 300 hamburgers, he must reject 60 customer orders because of insufficient supply. Determine the amount of lost profit.
c. Suppose that hamburgers can be prepared quickly after each customer orders. However, Mr. Thorpe must hire an additional part-time employee at a cost of approximately $30.00 per day. The per-unit cost of each hamburger remains at $1.50. Prepare an income statement under the JIT system assuming that 240 hamburgers are sold. Compare the income statement under JIT with the income statement prepared in Requirement a. Comment on how the JIT system would affect profitability.
d. Assume the same facts as in Requirement c with respect to a JIT system that requires additional labor costing $30.00 per day. Prepare an income statement under the JIT system, assuming that 360 hamburgers are sold. Compare the income statement under JIT with the income statement prepared in Requirement b. Comment on how the JIT system would affect profitability.
e. Explain how the JIT system might be able to improve customer satisfaction as well as profitability.