Question

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 $2.90 per sandwich. Sandwiches sell for $3.70 each in all locations. Rent and equipment costs would be $5,900 per month for location A, $5,950 per month for location B, and $6,200 per month for location C

a. Determine the volume necessary at each location to realize a monthly profit of $12,500·(Do not round intermediate calculations. Round your answer to the nearest whole number.) Location Monthly Volume
b-1. If expected sales at A, B, and C are 23,500 per month, 26,500 per month, and 25,500 per month, respectively, calculate the profit of the each locations? (Omit the "$" sign in your response.) Location Monthly Profits
b-2. Which location would yield the greatest profits?
a) Location A
b) Location C
c) Location B

Answer 1

a. Determine the volume necessary at each location to realize a monthly profit of $12,500·

contribution margin per sandwich = $3.70 - $2.90 = $0.80

• break even point location A = ($5,900 + $12,500) / $0.80 = 23,000 units
• break even point location B = ($5,950 + $12,500) / $0.80 = 23,062.5 ≈ 23,063 units
• break even point location C = ($6,200 + $12,500) / $0.80 = 23,375 units

b-1. If expected sales at A, B, and C are 23,500 per month, 26,500 per month, and 25,500 per month, respectively,

• profit location A = (23,500 x $0.80) - $5,900 = $12,900
• profit location B = (26,500 x $0.80) - $5,950 = $15,250
• profit location C = (25,500 x $0.80) - $6,200 = $14,200

b-2. Which location would yield the greatest profits?

• c) Location B