Question

Owner Shan Mu is considering franchising her Noodles by Mu restaurant concept. She believes people will pay $ 10.00 for a large bowl of noodles. Variable costs are $ 5.00 per bowl. Mu estimates monthly fixed costs for a franchise at $ 9 comma 000.1. Use the contribution margin ratio approach to find a franchise's breakeven sales in dollars.Begin by showing the formula and then entering the amounts to calculate the breakeven point in sales dollars using the contribution margin approach.2. Lo believes most locations could generate $96,500 in monthly sales.Is franchising a good idea for Lo if franchisees want a minimum monthly operating income of $25,500?

Answer 1

Answer:

Instructions are listed below.

Explanation:

Giving the following information:

She believes people will pay $ 10.00 for a large bowl of noodles. Variable costs are $ 5.00 per bowl. Mu estimates monthly fixed costs for a franchise at $9,000

First, we need to calculate the break-even point in dollars:

Break-even point (dollars)= fixed costs/ contribution margin ratio

Break-even point (dollars)= 9,000/ [(10 - 5)/10]= $18,000

To determine whether it is convenient to the franchisees, we need to calculate the margin of safety in dollars and, compare it to a break-even point in dollars with the desired income:

Break-even point (dollars)= (fixed costs + desired income)/ contribution margin ratio

Break-even point (dollars)= (9,000 + 25,500) / 0.5= $69,000

Margin of safety=(current sales level - break-even point)

Margin of safety= 96,500 - 69,000= $27,500

It is a good business opportunity for franchisees.