Problem: Using JIT to minimize waste and lost opportunity
Mark's Hamburger is a small fast-food shop in a busy shopping center that operates only during lunch hours. Mark Thorpe, the owner and manager of the shop, is confused. On some days, he does not have enough hamburgers to satisfy customer demand. On other days, he has more hamburgers than he can sell. When he has excess hamburgers, he has no choice but to dump them. Usually, Mr. Thorpe pre¬pares about 300 hamburgers before the busy lunch hour. The product cost per hamburger is approxi¬mately $1.50 and the sales price is $4.50 each. Mr. Thorpe pays general, selling, and administrative expenses that include daily rent of $80.00 and daily wages of $50.00.
Required: a. Prepare an income statement based on sales of 240 hamburgers per day. Determine the cost of wasted hamburgers if 300 hamburgers were prepared in advance.
b. Prepare an income statement assuming that 360 customers attempt to buy a hamburger. Since Mr. Thorpe has prepared only 300 hamburgers, he must reject 60 customer orders because of insufficient supply. Determine the amount of lost 1fit.