Quizzol

QUESTION:

Owner

Jackie Lo Woo

is considering franchising her

Oriental Express

restaurant concept. She believes people will pay

$ 6.00

for a large bowl of noodles. Variable costs are

$ 2.10

a bowl.

Woo

estimates monthly fixed costs for franchisees at

$ 7 comma 800.

Requirement 1. Find a franchisee's breakeven sales in dollars.

Begin by identifying the formula to compute the sales in units at various levels of operating income using the contribution margin approach.

Requirement 2. Is franchising a good idea for

Woo

if franchisees want a minimum monthly operating income of

$ 6 comma 500

and

Woo

believes that most locations could generate

$ 24 comma 000

in monthly sales?

The target sales in dollars to reach the minimum monthly operating income for franchises is

ANSWER:

Requirement 1

Fixed expenses	+	Operating income	) ÷	Contribution margin ratio	=	Breakeven sales in dollars

Breakeven Sales in Units=3.907,800≈2,000

Breakeven Sales in Dollars=2,000×6.00=12,000

Requirement 2

Total Contribution Required=7,800+6,500=14,300

Contribution Margin per Unit=6.00−2.10=3.90

Required Sales in Units=3.9014,300*6 =22,000

Posted by Cleveland on September 29, 2024