A Business Dilemma

Subway, the fast-food restaurant franchise, came out with a promotion offering two footlong subs for $10 during the early days of the Covid-19 pandemic as a way to drive traffic to its restaurants. Franchise owners were not happy with the promotion, claiming they lost money on every sub sold.

Assume that the costs related to the cost of one Subway footlong sub and the Subway franchisee include the following (assume a selling price of $10/2, or $5 per sub):

Cost Item	Details	Cost per sandwich
Food Ingredients	Per footlong average	$1.86
Labor cost per footlong	$16.00/hour wage rate and each worker can make 8 sandwiches per hour	$2.00
Credit card transaction fee		1% of sales price
Electricity	$400 per month divided by 4,000 orders per month	$0.10
Rent	Rent $1,600 per month divided by 4,000 orders per month	$0.40
Franchise fee amortization	Franchise and startup fees $43,200 divided by 180 months (15 years) divided by 4,000 orders per month	$0.06
Royalty fee (paid to Subway as a franchise fee)		5% of sales price
Advertising fee (paid to Subway as a franchise fee)		7% of sales price
Equipment leasing cost	$800 per month divided by 4,000 orders	$0.20

NOTE: Assume all subs are paid for with a credit card

What is the variable cost of each $10 footlong sub combo sold (remember that the $10 covers two subs)?