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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 $1.70 per sandwich. Sandwiches sell for $2.50 each in all locations. Rent and equipment costs would be $5,300 per month for location A, $5,650 per month for location B, and $5,900 per month for location C.
A. Determine the volume necessary at each location to realize a monthly profit of $9,500.
B. If expected sales at A, B, and C are 20,500 per month, 22,500 per month, and 23,500 per month, respectively, calculate the profit of the each locations.

Answer :

PARRAINGO

Answer:

To find the volume necessary to make a certain profit, use the formula:

= (Fixed costs + Profit) / Contribution margin

Contribution margin = Selling price - variable cost

= 2.50 - 1.7

= $0.80

Location A                                                     Location B

= (5,300 + 9,500) / 0.80                              = (5,650 + 9,500) / 0.80

= 18,500 sandwiches                                   = 18,938 sandwiches

Location C

= (5,900 + 9,500) / 0.80

= 19,250 sandwiches

B. Profit at A:

= Contribution margin * sales - fixed costs

= 0.8 * 20,500 - 5,300

= $11,100

Profit at B:

= 0.8 * 22,500 - 5,650

= $12,350

Profit at C:

= 0.8 * 23,500 - 5,900

= $12,900

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