0e Ovner Shirl Low Is considering ranchising her Noodies for aLow rostaurant con
ID: 2569831 • Letter: 0
Question
0e Ovner Shirl Low Is considering ranchising her Noodies for aLow rostaurant concept. She beloves poopie will pay 510.00or a lage bowl cfnoodies. variab costs are $5.00 per bowl Low ostimates mcnnt ttod costs for a ranchisc at 59,000 Requirements 1. Use the contiouticn margin ratio approach to Iind a ranchise's breskeven sales in dellars. Requirement 1. Use the cont bulin margin ralio spprcachte îind a ranchse's reakeven saies in dolars éd costs | + Target profit)/ cia ratio Required sales in dolars - Begin by showina the formula and then entering the amounts to caicuare the targeted salas dollars requined to eam the minimum menanty operating Income o 325 500 (Abbrewlation used CM-coburion magin. Is franchisina a9 Since the prediciec mentny sales of s71,500 are | the amount o, sales necessary generate a minimum monthly operating income of $25,500. Lowstanchising concept | | a good ideaExplanation / Answer
1 ) Required sales in dollars = [Fixed cost + traget profit] / C/M ratio
= [$9000 + 0 ] / 0.50
= $9000 / 0.50
= $18000
Note:- C/M ratio = [sales - variable cost] / sales
= [10 - 5 ]/ 10
= 5 / 10
= 50%
2 ) Required sales in dollars = [Fixed cost + traget profit] / C/M ratio
= [$9000 + $25500 ] / 0.50
= $34500 / 0.50
= $69000
3) Since the predicated monthly sales of $71500 are greater than the amount of sales necessary to generate the minimum monthly operating income of $25500, Low's franchise concept seems to be a good idea.
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