Chris, a local baker, is interested in opening her very own Cupcake Cafe?but to make it worth her while she needs to earn at least $35,000 per year in profit from all segments. She's lucked out and found an ideal location, right in the heart of a busy shopping district, and so expects big demand. Within a block of her location are five restaurants, and she is pretty certain she can win contracts with at least two of them.

Chris knows from her prior work that restaurants are generally paying ~$18 per dozen cupcakes. Additionally, Chris has pre-existing relationships with several caterers and figures she'll bake for at least two events (weddings, showers, graduations, big parties) for 48 weekends each year. Each event usually results in orders of 150-500 cupcakes. She's also counting on heavy foot traffic from shoppers and office workers to her bakery for individual sales or by the dozen.

Chris calculates that it will cost $1.50 to produce each of the first 240 cupcakes she sells each day, but after that, costs will be reduced to $1 per cupcake. Although she'd like to avoid hiring more than one person at the start of her business, her cafe will be busiest from 12 -3 each day, when she'll likely need extra help to handle the register at $10 per hour.

Chris knows how hard it is to start a business and is ready to commit to opening the cafe six days a week minus 10 holidays throughout the year.

Part 3 Your recommended strategy Rationale for your overall recommended price/strategy* Part 4 Where do you expect the highest margin? Why? Where might you suggest Chris take a lower margin? Why? Part 5 Should Chris open the cafe? Explain, using projected revenues and profits to support your decision.Sales by Segment Cafe sales to Cafe sales to One time sales to Contract sales to consumers consumers caterers restaurants 1 - 11 cupcakes Dozen increments > 10 dozen/event >10 dozen/week Parts 1 & 2 Cost-plus pricing suggested price Marginal cost pricing suggested price Peak-load pricing suggested price Target cost pricing suggested price