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 $1.60 per sandwich. Sandwiches sell for $2.40 each in all locations. Rent and equipment costs would be $5,250 per month for location A, $5,625 per month for location B, and $5,875 per month for location C.

a) Determine the volume necessary at each location to realize a monthly profit of $9,250. (Do not round intermediate calculations. Round your answer to the nearest whole number.)
b) If expected sales at A, B, and C are 20,250 per month, 22,250 per month, and 23,250 per month, respectively, calculate the profit of the each locations? (Omit the "$" sign in your response.)
c) Which location would yield the greatest profits?

Answer 1

Step-by-step explanation:

The computations are shown below:

a. The calculation of volume for each location is as follows:

Location A

= ($5,250 + $9,250) ÷ ($2.40 - $1.60)

= ($14,500) ÷ ($0.8)

= $18,125

Location B

= ($5,625 + $9,250) ÷ ($2.40 - $1.60)

= ($14,875) ÷ ($0.8)

= $18,594

Location C

= ($5,875 + $9,250) ÷ ($2.40 - $1.60)

= ($15,125) ÷ ($0.8)

= $18,906

b. The computation of the profit for each location is as follows:

Location A

= $20,250 × ($2.40 - $1.60) - $5,250

= $16,200 - $5,250

= $10,950

Location B

= $22,250 × ($2.40 - $1.60) - $5,625

= $17,800 - $5,625

= $12,175

Location C

= $23,250 × ($2.40 - $1.60) - $5,875

= $18,600 - $5,875

= $12,725

c. Based on the profits, the location yield the greatest profit is location C