Sqeeze Me Inc. operates 25 bars in at Coast hotels. The bars are typically staffed by one person and historically have been quite profitable. In recent months however sales have fallen sharply because of increased competition. For example, at the start of the year, the location in the Peabody Hotel had an average of 30 transactions per hour. The decline appears to be due to customer reluctance to wait in line at Squeeze Me, since the opening, in late February, of two nearby competing bars. At a recent staff meeting. Julia Steffano, founder and CEO of Squeeze Me, made The following suggestion. How about adding another staff person to the Peabody bar? Then our customers wont be waiting in line and we can recover our lost business. Id be surprised if sales didnt get back to 30 transactions per hour, if we had to staffers working the bar. As the meeting ended, the company controller, Samuel Costello, volunteered to analyze the financial impact of increasing staffing at the Peabody Hotel location.

Required: using the revenue and cost data table, calculate the effect on profit of implementing Steffanos suggestion. Do you recommend staffing the Peabody Hotel location with two people? What alternative suggestions could improve the level of business? Discuss the benefits and disadvantages of each of your proposals.

Table 1 Revenue and cost data, Squeeze Me March April January February May June 10,800 10,044 Number of transactions 10,080 8,700 7,200 5,568 360 324 Hours of business 360 348 360 348 28 30 31 16 25 20 Avg. trans. per hour Revenue $43,200 $40,176 $40,320 $34,800 $28,800 $22,272 Costs Cost of goods sold $17,280 $16,070 $16,128 $13,920 $11,520 $8,909 Labor 2,520 2,268 2,520 2,436 2,520 2,436 Utilities 400 450 325 300 280 275 Depreciation 2,000 2,000 2,000 2,000 2,000 2,000 Rent 700 700 700 700 700 700 Other 250 265 280 225 240 220 Total Cost 23,150 21,753 21,953 19,581 17,260 14,540 Avg. cost per transaction 2.14 2.17 2.18 2.25 2.40 2.61