The franchise's breakeven sales in dollars is $21,000.
Breakeven Sales (in dollars) = Fixed Costs / Contribution Margin Ratio
We need to first get the Contribution Margin Ratio. Contribution Margin Ratio = (Selling Price - Variable Costs) / Selling Price
Data:
Selling Price = $7.00
Variable Costs = $3.50
Contribution Margin Ratio = ($7.00 - $3.50) / $7.00
= $3.50 / $7.00
= 0.5
Breakeven Sales (in dollars) = $10,500 / 0.5
Breakeven Sales (in dollars) = $21,000
Therefore, the franchise's breakeven sales in dollars is $21,000.
The full question you are referring to is:
Owner Shen Lu is considering franchising her Noodles by Lu restaurant concept. She believes people will pay $7.00 for a large bowl of noodles. Variable costs are $3.50 per bow. Lu estimates monthly foxed costs for a franchise at $10,500.
Use the contribution margin ratio approach to find a franchise's break-even sales in dollars.