Pizza Pies Limited has the following value chain for its pizzas. Boxes are designed by Shala Designers Inc. and printed and delivered by Rodoes Printing Co. for $0.95 per box. The pizzas are made in the stores with fresh ingredients and baked in the ovens for a total cost of $3.80, including labor, ingredients, and overhead. The pizza delivery costs $1.35. Pizza Pies needs to reduce the price of its pizza to $6.50 to meet local demand. However, it desires a 10 percent markup for profit.
1. What is the target cost?
2. By how much will Pizza Pies need to cut costs in order to achieve the target cost?