Jone’s Burger is a very popular lunch time spot and has a large seating capacity of 700 seats.  It often boasts a lunchtime crowds of 600 customers for Jone’s Lunch Special for $5.00. Joan Jones the owner has roughly calculated the costs on a daily basis, fixed costs $1200, and variable costs to be $2 per lunch meal.

Jone’s Burgers is also a popular spot for bus-tours.  On average, the bus tours would have 50 customers stop-by. Joan welcomes the bus-tours as the establishment can easily the additional customers.  The bus tour operators pay for the entire group and does not increase any fixed costs.  As tours have become less frequent due to added competition, the tour operators are requesting that the lunch price be reduced to $3.50 for each of the 50 customers on the bus.

Required:

a. What is the incremental profit (loss) per bus-tour meal? Should Joan accept the new tour operator request? Provide your rationale.

b. What if the tour operator could generate 200 customers (4 bus loads) once a month for $3.00 per meal?  What is the incremental profit (loss) for each meal? What advice would you give to Joan – is this something she should consider?

Answer rating: 100% (QA)

a Calculation of incremental profit loss per bustour meal Price of per meal 350 Variable cost of per ... View the full answer