Coe College Operations And Supply Chain Management Assignment Help - Lugano's Pizza Parlor

Question - Lugano's Pizza Parlor is considering the purchase of a large oven and related equipment for mixing
and baking "crazy bread." The oven and equipment would cost $143,200 delivered and installed. It
would be usable for about 15 years, after which it would have a 10% scrap value. The following
additional information is available:

a.
Mr. Lugano estimates that purchase of the oven and equipment would allow the pizza parlor to bake
and sell 80,000 loaves of crazy bread each year. The bread sells for $1.35 per loaf.
b.
The cost of the ingredients in a loaf of bread is 40% of the selling price. Mr. Lugano estimates that
other costs each year associated with the bread would be as follows: salaries, $25,000; utilities,
$3,000; and insuranc ...Read More e, $1,000.
c.
The pizza parlor uses straight-line depreciation on all assets, deducting salvage value from original
cost.
(Ignore income taxes.)

Required:
1.
Prepare a contribution format income statement showing the net operating income each year from
production and sale of the crazy bread. (Input all amounts as positive values. Omit the "$" sign in your
response.)


- Sales Revenue $ 108000
- Variable expenses:
Deduct Depreciation 143200
Contribution Margin $35200


Selling and administrative expenses:
- Cost of ingredients 43200
- Salaries 25000
-Utitilities 3000
-Insurance 1000
Expenses in total= $72200

- Net Operating Loss $107400



2a.
Compute the simple rate of return for the new oven and equipment. (Round your answer to 1 decimal
place. Omit the "%" sign in your response.)

Simple rate of return 7.5%

2b.
If Mr. Lugano accepts any project with a simple rate of return greater than 13%, will he acquire the
franchise?

No


3a.
Compute the payback period on the oven and equipment.

Payback period 18 years

3b.
If Mr. Lugano accepts any investment with a payback period of less than five years, will he acquire the
franchise?


No ...Read Less

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