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You have been operating a company from your apartment to earn extra money to pay for college.
The company, College Pretzel Company (CPC), bakes hot soft pretzels for hungry students late at night. The company has been breaking even for the past year. You’ve decided to reevaluate the design for the production process to make a profit. You will be evaluating all aspects of your business, including the price, layout, order process, and equipment.
• Business Concept
You bake fresh pretzels to order. In addition, you offer an assortment of toppings for the pretzels. These toppings include mustard, cheese, chocolate, and caramel sauce. A customer can choose one topping for free with each order. The pretzels are ready for pickup in an hour.
Your pretzels differ greatly from those that can be bought in any store. For starters, the pretzels are fresh and hot. You do not bake the pretzels until you receive an order. In addition, your pretzels are soft and doughy, unlike the hard pretzels available at any grocery store.
• Production Process
Making a pretzel is a relatively simple process. You mix the ingredients in a bowl, knead until smooth, allow the dough to rise, cut the dough and form the pretzels, boil the pretzels, place the pretzels onto a tray, sprinkle with salt, put the pretzels into the oven, bake the pretzels, remove the tray of pretzels from the oven, take the pretzels off the tray, and pack them in a box.
The capital equipment that you have for this process includes: a high-capacity mixer with dough hook, cookie trays, bowls, and knives. The current oven in your apartment holds one cookie tray at a time. Your rent includes the electricity cost. The variable costs include the cost of ingredients and toppings ($0.50 per six pretzels), the cost of the box ($0.20 per box, which holds six pretzels), and your time.
Based on your experience over the past year, you have determined the time necessary to complete each step. The first step—taking an order—is extremely fast and accurate.
Orders are placed on your Web site and immediately available for review. Therefore, this step can be ignored in your analysis.
The first step in the baking process is to clean out the bowl and utensils, add the ingredients to the bowl, and mix. The mixer can hold and knead ingredients for 18 pretzels. It takes you five minutes to clean the materials and mix the ingredients. You then knead the dough in the mixer for two minutes. Next, the dough needs to rise in the bowl for 10 minutes. It takes approximately two minutes to cut and shape the dough into a pretzel shape for six pretzels. Each pretzel must boil for one minute and you can only boil two pretzels at a time. After the pretzels are boiled, they are placed on the cookie sheet. One cookie sheet can hold six pretzels. When the cookie sheet is full, it’s time to salt the pretzels, which takes a negligible amount of time.
Placing the pretzel tray into the oven takes about one minute. The pretzels bake for five minutes. When the pretzels are removed from the oven, it takes one minute to pack the six pretzels and one minute to accept payment.
• Sales History
You started your business in January 2008. The following table shows the monthly actual
and forecasted demand for the past year.
Month Demand
Forecast Actual
January 300 250
February 300 280
March 300 310
April 300 330
May 200 250
June 180 180
July 150 170
August 180 200
September 300 280
October 300 330
November 300 350
December 300 220
Forecast Actual
mand
Month
Currently, you are open for business between 10 p.m. and 3 a.m., Monday through Saturday. You do not have any additional employees besides yourself. You sell pretzels by the half-dozen—six pretzels in a box. There is no price discount based on the number of boxes a customer orders.
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