A Business Dilemma

Subway, the fast food restaurant franchise, announced in early 2018 it planned to bring back the $5 Footlong promotion. Hundreds of Subway franchise owners protested the promotion saying that they cannot afford to sell the footlong sub sandwiches for $5. You'll want to review the Subway webpage featured in the Chapter 8 module.

Assume that the costs related to a Subway footlong and a Subway franchise include the following

Cost Item	Details	Cost per sandwich
Meats, cheeses, toppings	Per footlong	$2.25
Sub roll bread	Per footlong	$.29
Labor cost per footlong	$15.00/hour wage rate and each worker can make 10 sandwiches per hour	$1.50
Credit card transaction fee	1.0% + $.10 per transaction	$0.15
Electricity	$360 per month dividend by 4,000 orders per month	$0.09
Rent	Rent $1,200 per month divided by 4,000 orders per month	$0.30
Franchise fee amortization	Franchise and startup fees $36,000 divided by 180 months (15 years) divided by 4,000 orders per month	$0.05
Royalty fee	8.0% of sales	$0.40
Advertising fee	4.5% of sales	$0.23
Equipment leasing cost	$600 per month divided by 4,000 orders	$0.15
Cost per footlong sandwich		$5.41

Question #1: Bob owns a subway franchise and he is furious at the thought of offering $5.00 footlongs. His comment was they cost us $5.41 each so we will be upside down on each sub sold. Ill lose my shirt!. Do you agree or disagree with Bob that this idea should be immediately rejected without any further analysis? If you dont agree with Bob, why do you think further analysis is required?

Question #2: What are the relevant and irrelevant costs in this pricing decision? (hint: there are 6 relevant costs)

Question #3: Can you think of any other reasons/factors besides the costs listed above that might be relevant to the pricing decision to offer the $5.00 footlongs? Use your imagination.