Question

Owner Fay Woo is considering franchising her Oriental Joy restaurant concept. She believes people will pay $ 6.50 for a large bowl of noodles. Variable costs are $ 1.95 a bowl. Woo estimates monthly fixed costs for franchisees at $ 8 comma 400. Read the requirements LOADING.... 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. ( Fixed expenses + Operating income ) / Contribution margin ratio = Breakeven sales in dollars The breakeven sales in dollars is $ 12,000 . Requirement 2. Is franchising a good idea for Woo if franchisees want a minimum monthly operating income of $ 7 comma 000 and Woo believes that most locations could generate $ 26 comma 000 in monthly​ sales? The target sales in dollars to reach the minimum monthly operating income for franchises is $ .

Answer 1

Answer:

Instructions are listed below.

Explanation:

Giving the following information:

She believes people will pay $ 6.50 for a large bowl of noodles. Variable costs are $ 1.95 a bowl.

Woo estimates monthly fixed costs for franchisees at $ 8,400

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

contribution margin ratio= (price- unitary variable cost)/price= (6.5-1.95)/6.5= 0.7

Break-even sales (dollars)= 8400/0.7= $12,000

2) Franchising:

Franchisees want a minimum monthly operating income of $7,000

Woo believes that most locations could generate $ 26,000 in monthly​ sales.

Break-even sales (dollars)= (8400+7000)/0.7= $22,000

The minimum monthly operating income for franchises is $22,000.