Did Subway franchisees profit from the $10 for two footlong subs during the pandemic?

Subway, the fast-food restaurant franchise, came out with a promotion offering two footlong subs for $10 during the early days of the Covid-19 pandemic as a way to drive traffic to its restaurants. Franchise owners were not happy with the promotion, claiming they lost money on every sub sold.

Assume that the costs related to the cost of one Subway footlong sub and the Subway franchisee include the following (assume a selling price of $10/2, or $5):

See description for link to Excel file containing this table in an accessible format.

For the above table in an Excel format for accessibility, please see this link.

Assume that all transactions are paid for using a credit card.

View a quick tutorial video about cost behavior and types of costs at this link and then answer the following questions.

Note to instructors: This post is assignable in Pearson’s MyLab and has questions that are auto-graded. All blog questions are found in Instructor Tools > Assignment Manager > Create Assignment > Create homework > And then change the chapter to “News. Accounting in the Headlines.” The “News. Accounting in the Headlines” chapter will be near the bottom of the list of chapters.

Questions

  1. Identify each of the listed costs of one footlong sub sandwich as either variable or fixed.
  2. What costs and factors do you think should be relevant to the footlong sub sandwich pricing decision? Explain.
  3. What is the variable cost of each $10 footlong sub combo sold (remember that the $10 covers two subs)?
  4. Do you agree that a Subway franchisee would lose money for two footlong subs sold for $10? Why or why not?

Copyright 2022 Wendy M. Tietz, LLC

 

About Dr. Wendy Tietz, CPA, CMA, CSCA, CGMA

Dr. Wendy Tietz is a professor of accounting at Kent State University in Kent, Ohio, USA. She is also a textbook author with Pearson Education.

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