Customer-Level Planning 7-Eleven operates a number of convenience stores worldwi

Question

Customer-Level Planning
7-Eleven operates a number of convenience stores worldwide. Assume that an analysis of operating costs, customer sales, and customer patronage reveals the following:

Determine the city population required for a single 7-Eleven to earn an annual profit of $40,000.

Round annual contribution per customer to two decimal places.

For customers required for desired profit and required population, round up to the nearest whole number (i.e., 325.333 customers = 326)

Fixed costs per store $70,000/year Variable cost ratio 0.80 Average sale per customer visit $16.00 Average customer visits per week 1.50 Customers as portion of city population 0.05

Explanation / Answer

a)Annual contribution per customer = price [1-variablecost ratio]

          = 16[1-.80]

          = 16*.20

         = $ 3.20

b)Customer required for desired profit =[fixed cost+target profit ]/contribution per customer

        = [70000+40000]/3.2

       = 110000/3.2

      = 34375 customers

c)Required population = customers /proportion of population

                       = 34375 /.05

            = 687500

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