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Tonys Pizzeria offers a full line of pizza products, including dessert pizzas and breadsticks. They...

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Accounting

Tonys Pizzeria offers a full line of pizza products, including dessert pizzas and breadsticks. They also include a range of salad choices made fresh on the premises. Mikes Mainline Grocery, just down the block, has offered to provide all the salad ingredients to Tonys, washed, cut and ready to assemble in view of patrons as Tonys does now. The change will have no effect on salad sales, since as far as customers are concerned, nothing will appear different. Tonys sells about 60 salads for every 100 customers they serve for a total of about 5,400 salads each month. Variable costs for the salads are $1.45 for ingredients and $0.75 for labor. Fixed costs to support the salad-making work amount to $1,000/month. Mikes Mainline will supply the salad ingredients for $1.80/salad; labor costs will drop to $0.50/salad. Fixed costs related to salads will drop by 20% if Mikes supplies the ingredients.

A) Prepare an analysis of whether the cost of making salads will increase or decrease if Mikes offer is accepted.

B) Now assume that Tonys can put pasta entrees on the menu if Mikes supplies the salad makings. What information would you need to evaluate Mikes offer now?

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