Not understanding premise in Table 5

Question

Hi,

this question is related to productivity and data in Table 5. - Pulled Pork Burgers.

So we have a data on number of PPB in a day (30), number of dedicated hours for those burgers (4) and employee cost (25e/h). Meaning that an employee works 4hrs (100euros) for 30 burgers. So we assumed that the only thing that employee does in those 4 hours is cooking burgers - he produces 7.5 burgers in an hour.

In the next question we concule that by selling 9 burgers/hour we will manage to break even. But if we sell 9 burgers, will our employee be able to produce that number in an hour? My opinion is that if they can produce at 9 b/h then we shouldn't have assumed in question before that they produce 7.5 burgers in an hour - they should be able to produce at speed of 9 b/h and allocate the rest of the time for making other food?

In other words, if we sell 36 burgers and keep the same cooking speed, our profits should be R =180 (36*5) minus C= 72 (2*36) + 120(36/7.5 * 25 - number of hours needed to cook 36 burgers * price per hour) which is 180-192 = -12

So my opinion is that in this case we assumed that the productivity of the emps increased or that the time for PPB is not isolated well enough as a factor. I would love to hear opinions, please help me understand the correct logic if this is incorrect.

Thanks

Answer 1

Hi,

Your reasoning is completely right, without changing the cooking speed the business is not profitable. If you read carefully that part, the author says:

Assuming that the employee cannot work faster, this loss will get bigger the more our sales grow.

And then he suggests a potential solution that is

Barb could find an employee that works faster

But how much faster? To answer this question he calculates that an employer should be able to produce 9 burgers/h in order to become profitable.

Is it more clear now?
Feel free to contact me if you want to discuss more about it.

Luca