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

Cost item Details Cost per sandwich

Food ingredients Per footlong $ $2\mathrm{.}00$

Labor cost per footlong Labor $$14\mathrm{.}00/$hour wage rate, each worker can make $7$ sandwiches per hour $2\mathrm{.}00$

Credit card transaction fee $1\mathrm{.}0\%+$ $$0\mathrm{.}10$ per transaction $0\mathrm{.}15$

Electricity $$360$ per month divided by $4,000$ orders per month $0\mathrm{.}09$

Rent Rent $$1,200$ per month divided by $4,000$ orders per month $0\mathrm{.}30$

Franchise fee amortization Franchise and startup fees $$36,000$ divided by $180$ months $(15$ years$)$ divided by $4,000$ orders per month $0\mathrm{.}05$

Royalty fee $8\mathrm{.}0\%$ of sales $0\mathrm{.}40$

Advertising fee $4\mathrm{.}5\%$ of sales $0\mathrm{.}23$

Equipment leasing cost $$600$ per month divided by $4,000$ orders $0\mathrm{.}15$

Assume that all sales are paid for using a credit card.

Questions

Identify each of the listed costs of one footlong sub sandwich as either variable, fixed, or mixed.

What costs and factors do you think should be relevant to the footlong sub sandwich pricing decision? Explain.

What is the contribution margin of each $$5$ footlong sub sandwich?

Do you agree that a Subway franchisee would lose money for each footlong sold for $$5?$ Why or why not?