Question

Problem 8-2 The owner of Genuine Subs, Inc., hopes to expand the present operation by adding one new outlet. She has studied three locations. Each would have the same labor and materials costs (food, serving containers, napkins, etc.) of $2.40 per sandwich. Sandwiches sell for $3.20 each in all locations. Rent and equipment costs would be $5,650 per month for location A, $5,825 per month for location B, and $6,075 per month for location C. a. Determine the volume necessary at each location to realize a monthly profit of $11,250. (Do not round intermediate calculations. Round your answer to the nearest whole number.) Location Monthly Volume A B C b-1. If expected sales at A, B, and C are 25,250 per month, 22,250 per month, and 24,250 per month, respectively, calculate the profit of the each locations? (Omit the "$" sign in your response.) Location Monthly Profits A $ B $ C $ b-2. Which location would yield the greatest profits?

Answer 1

ReqA: Volume for yielding Desired income of $11,250
Contribution margin per sandwich: Selling price - Variable cost
			(3.20 -2.40 ) = $ 0.80 per sandwich
Desired volume = (Rent expense+ Desired Profits )/ Contribution per sandwich
Lacation-A: (5650+11250) /0.80 = 21125 sandwich
Location-B: (5825+11250) /0.80 = 21344 sandwiches
Location -C: (6075+11250) /0.80 = 21656 sandwich
Req b-1:
Sales units (Total sales/ Selling price)
Location-A ($25250 /3.20) = 7891 units
Location-B ($22,250/3.20 )= 6953 units
Location-C ($24250 /3.20 ) = 7578 units
Total Contribution earned (@ $0.80 per unit)
Location-A (7891 [email protected]) = $6313
Location-B: (6953 [email protected])= $ 5562
Location-C (7578 units @0.80) = $ 6062
Net Operatin income = Contribution- Rent
Location-A ($6313- $5650) = $ 663 profits
Location-B (5562-$5825)= -$263 loss
Location-C (6062-6075) = -$ 13 loss
Reqb-2: Location-A will yield greatest Income