Answer:
a) Break-even sales (BEP)= $15,750
b) Y<em>es, the franchise is good because the $63,000 sales that be generated by most locations is higher than the minimum sales revenue of $36,000 required to achieve the the target profit</em>
Explanation:
a)
Contribution margin ratio= (sales-variable cost/sale )× 100
Break -even sales (BEP) = Fixed cost/Contribution margin ratio
CMR = (10.50 -6.30)/ 6.30= 66.7%
BEP= 10,500/66.7%= $15,750
b)
To generate a minimum operating income of $13,500, the franchisee will need to make sales worth:
Sales revenue to achieve pre-determined income=( Fixed cost + Target income)/CMR
= (10,500. + 13,500)/0.667
= $36,000
Y<em>es the franchise is good because the $63,000 sales that be generated by most locations is higher than the minimum sales revenue of $36,000 required to achieve the the target profit</em>
