Show work! How did they get this net sale - Subway\'s BEP: 50 percent (net sales
ID: 2707069 • Letter: S
Question
Show work!
How did they get this net sale -
Subway's BEP:
50 percent (net sales) = $60,000 + 30.5 percent (net sales)
Net sales = $307,692
Blimpie's BEP:
50 percent (net sales) = $68,000 + 29 percent (net sales)
Net sales = $323,810
And how do I solve for this net sale -
50 percent (net sales) = $85,000 + 30.5 percent (net sales) Net sales = ?
50 percent (net sales) = $87,000 + 28.2 percent (net sales) Net sales = ?
MORE INFORMATION:
Assume that you own a sandwich shop. In looking over last year's income statement you see that the annual sales were $250,000 with a gross margin of 50 percent, or $125,000. The fixed operating expenses were $50,000: the variable operating expenses were 20 percent of sales, or $50,000: and your profit was $25,000, or 10 percent of sales. In discussions with your spouse, you wonder if joining a franchise operation such as Subway or Blimpie would improve your results. Your research has determined that Subway requires a $10,000 licensing fee in addition to an 8-percent royalty on sales and a 2.5-percent advertising fee on sales. Blimpie, while requiring an $18,000 licensing fee, charges only a 6-percent royalty and a 3-percent advertising fee.
Assuming that you wanted to break-even, what amount of sales would you have to generate with each channel during the first year, since both your fixed and variable expenses would increase?
Remember the break-even point (BEP) is where gross margin equals total operating expenses: in equation form, this is:Gross Margin =Fixed Operating Expenses + Variable Operating Expenses
Thus, with Subway, fixed expenses would increase from $50,000 to $60,000 and your variable expenses would increase from 20 percent of sales to 30.5 percent (20 percent + 8 percent + 2.5 percent). Blimpie's would increase fixed expenses by $18,000 and variable expenses by 9 percent. Using the equation we can calculate the BEP for both:
Subway's BEP:
50 percent (net sales) = $60,000 + 30.5 percent (net sales)
Net sales = $307,692
Blimpie's BEP:
50 percent (net sales) = $68,000 + 29 percent (net sales)
Net sales = $323,810
Explanation / Answer
FRANCHISE
ADDITIONAL VARIABLE COST
EXISTING VARIABLE COST
TOTAL VARIABLE COST
ADDITIONAL FIXED COST
EXISTING FIXED COST
TOTAL FIXED COST
Subway
8% ROYALTY ON SALES +2.5% ADVERTISING FEE ON SALES
=10.5% ON SALES
20% ON SALES
10.5% +20%
=30.5% ON SALES
$10000
$50000
$60000
Blimpie
6% ROYALTY ON SALES + 3% ADVERTISING FEE ON SALES
=9 % ON SALES
20% ON SALES
9% + 20%
=29% ON SALES
$18000
$50000
$68000
NOTE :-for BREAK- EVEN POINT
Gross Margin =Fixed Operating Expenses + Variable Operating Expenses
FRANCHISE
ADDITIONAL VARIABLE COST
EXISTING VARIABLE COST
TOTAL VARIABLE COST
ADDITIONAL FIXED COST
EXISTING FIXED COST
TOTAL FIXED COST
Subway
8% ROYALTY ON SALES +2.5% ADVERTISING FEE ON SALES
=10.5% ON SALES
20% ON SALES
10.5% +20%
=30.5% ON SALES
$10000
$50000
$60000
Blimpie
6% ROYALTY ON SALES + 3% ADVERTISING FEE ON SALES
=9 % ON SALES
20% ON SALES
9% + 20%
=29% ON SALES
$18000
$50000
$68000
NOTE :-for BREAK- EVEN POINT
Gross Margin =Fixed Operating Expenses + Variable Operating Expenses
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