Activity 2

TAKING CARE OF BUSINESS

How much would it cost to run a submarine sandwich shop in your community?  Look through the classified or real-estate advertisements in your local newspaper and identify a building that could be rented.  Find the cost of rolls , meat, cheese, lettuce, and so forth that would be needed per sandwich.  (For help in determining prices, visit your local supermarket, or use the supermarket ads in the weekly food edition of the local newspaper.)  Determine what you would have to pay your help (two workers at all times).  Assume you sell 200 submarine sandwiches per day when you stay open from 10:00 AM to 8:00 PM.  Write this information in the column at the left below.  Then answer the questions that follow.

Costs of Running a Submarine Sandwich Shop
ITEM COST PER DAY FIXED OR VARIABLE?
Soft Drink? $________  ________
Rent per day (monthly rent= $______,
daily rent = $______(divide by 30)
$________  ________
Cost of 200 rolls $________  ________
Cost of 200 bags and napkins $________  ________
Cost of employees (local wage =
$____per hour, daily wages =
$____x 10 hours x 2 workers,
add 20% for fringe benefits)
$________  ________
Cost of insurance per day
($240/month)
$________  ________
Utilities ($360/month) $________  ________
Other costs $_20_____  ________
TOTAL $_______  ________

1.  How much would you need to charge per sandwich to earn 5 percent return on your sales?

     To find the answer, proceed as follows:

  • Multiply total costs times 1.05 to find the amount you must take in from sales.
          _________________ x 1.05 = _________________
  • Divide the amount you must take in by 200 sandwiches, and you have the price you must charger per sandwich.
          _________________ divided by 200 = ______________ (price)

2.  In the fixed-or-variable column, write F for fixed costs and V for variable costs.

3.  Should you sell soft drinks or other products in your submarine sandwich shop?  To help you decide, indicate whether costs would change if soft drinks were offered for sale by writing yes or no in the appropriate place in the "Soft Drink?" column.

© Council for Economic Education, New York, NY
Entrepreneurship in the U.S. Economy, Lesson 20

Entreprenuers Control Costs: Economics Lesson