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Andrea Kimball has recently acquired a franchise of a well-known fast-food and restaurant chain

Andrea Kimball has recently acquired a franchise of a well-known fast-food and restaurant chain
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ACCOUNTING

6-28 Pricing and impact on demand
Andrea Kimball has recently acquired a franchise of a well-known fast-food and restaurant chain. She is considering a special promotion for a week during which there would be a $0.40 reduction in hamburger prices from the regular price of $1.09 to $0.69. Local advertising expenses for this special promotion will amount to $4,500. Andrea expects the promotion to increase sales of hamburgers by 20% and French fries by 12% but she expects the sales of chicken sandwiches to decline by 8%. Some customers, who otherwise may have ordered a chicken sandwich, now will order a hamburger because of its attractive low price. The following data have been complied for sales prices, variable costs, and weekly sales volumes:

PRODUCT SALES PRICE VARIABLE COSTS SALES VOLUME
Hamburgers $1.09 $0.51 20,000
Chicken 1.29 0.63 10,000
Sandwiches
French fries 0.89 0.37 20,000

Evaluate the expected impact of the special promotion on sales and profits. Should Andrea go ahead with this special promotion? What other considerations are relevant in this decision?

 

FILE: MS WORD

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