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You are planning a promotion that will feature a lunch special. The lunch special will feature a loss leader of a piece of pie for $1 when the customer orders a meal. The normal retail price of the pie is $2. Your cost for the pie is $1. How much margin is being lost if you sell 35 of the lunch specials?

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Answer:

Margin Lost= $35 ($1 per lunch special)

Explanation:

Normal Retail Price of the Pie: $2

Promotional price of the Pit: $1

Cost for the pie: $1

Selling target: 35 lunch specials

Normal Margin: Retail price - Cost

Normal Margin= $2 - $1= $1

Promotional Margin= Promotional Price - Cost

Promotional Margin = $1 - $1= $0

Margin Lost: (Promotional Margin - Normal Margin) x Selling Target

Margin Lost: ($0 - $1) x 35 = -$35

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