Question

Problem 8-2 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 $1.76 per sandwich. Sandwiches sell for $2.65 each in all locations. Rent and equipment costs would be $5,000 per month for location A, $5,500 per month for location B, and $5,800 per month for location C. a. Determine the volume necessary at each location to realize a monthly profit of $10,000.

Answer 1

Answer:

Location A -16,854 sandwiches

Location B-17,416 sandwiches

Location C-17,753 sandwiches

Explanation:

The formula to determining the volume necessary to realize a profit of $10,000 in each location is given below:

target volume=fixed cost+target profit/contribution per sandwich

Location A:

the contribution per sandwich is the selling price minus variable cost per sandwich ,which is $0.89($2.65-$1.76)

Target volume=($5,000+$10,000)/$0.89= 16,854 sandwiches

Location B

Target volume=$5,500+$10,000/$0.89=17416 sandwiches

Location C:

Target volume=($5,800+$10,000)/$0.89= 17,753 sandwiches

Answer 2

Answer:

                                                    Location A    Location B   Location C

Volume of Sales (Sandwiches)  16,854           17,416           17,753  

Explanation:

First of All we need to calculate the Contribution margin

Contribution margin = Selling Price - Variable cost = $2.65 - $1.76 = $0.89

Now we can calculate the volume of sales by following formula

Sales Volume = ( Desired Profit + Fixed Costs ) / Contribution margin

Location A Sales Volume = ( $10,000 + 5,000 ) / $0.89 = 16,854 sandwiches

Location B Sales Volume = ( $10,000 + 5,500 ) / $0.89 = 17,416 sandwiches

Location C Sales Volume = ( $10,000 + 5,800 ) / $0.89 = 17,753 sandwiches