During the COVID-19 pandemic, a student conducted a feasibility study about fruit pies to understand the demand and marketability of the product in their city. She is doing this to take advantage of the remote learning or distance learning implemented due to restrictions of in-person learning, she is also taking advantage of the free time she has while learning at home, further this is also to supplement the income of the family. There are two options of selling the product, she can sell it via the local bakery in their city which takes 10% of the total sales of her fruit pies or via online store which takes 3% of her total sales and a management and service fees of 30 Euros for the online platform or sell it just outside their residence but she has to pay 2 dollars per day for 5 days of work per week for hiring someone to man the stall.

As a result of the feasibility study, it was identified that consumers within the city prefer peach pie at 35% of the total potential market, 15% for pumpkin pie, 20% for cherry pie and 30% for blueberry pie. Based on her financial study, cost of making peach pie is 4 Euros while cherry pie costs 12.5% more than peach pie while the cost of preparing blueberry is 3.6 Euros and pumpkin pie is 1 Euro less than blueberry pie. To ensure profitability, she uses a cost plus model wherein she adds mark-up based on consumer preference percentage per variant with respect to total potential market.

She assumes that all the pies to be made will be sold out owing to their high quality due to the use of fresh ingredients. In making the pies, it requires special flour and sugar. With her initial capital, she can buy no less than 5,000 cups of sugar and 10,100 cups of flour. Peach and cherry pies require 2 cups of sugar and 4 cups of special flour, and blueberry and pumpkin pies require 3 cups of sugar and 5 cups of special flour.

With the help her siblings together they can make peach pie in 7 minutes, cherry pie in 8 minutes, blueberry pie in 10 mins and pumpkin pie in 12 minutes. They plan to work no more 60 hours a month since she has a good schedule with online classeses this semester.

She plans to produce the number of pies per variant not more than the percent of consumer preference from the total potential market.

To start the business, she needs to know the following:

1. Where should she sell the pies? Present profitability as follows:

a. Gross Revenue (10 points)

b. Net Income (60 points)

What do you recommend? (50 points)

2. Based on the solution above, does the allocation satisfies the percent requirement per variant?

a. Calculate using the original values (20 points)

b. Calculate using the modified values (20 points)