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
<u>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:</u>
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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.
