The owner of Genuine Subs, Inc., hopes to expand the present operation by adding

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 $1.90 per sandwich. Sandwiches sell for $2.70 each in all locations. Rent and equipment costs would be $5,400 per month for location A, $5,700 per month for location B, and $5,950 per month for location C.

a. Determine the volume necessary at each location to realize a monthly profit of $10,000. (Do not round intermediate calculations. Round your answer to the nearest whole number.) Location Monthly Volume

A

B

C

b-1. If expected sales at A, B, and C are 21,000 per month, 23,000 per month, and 24,000 per month, respectively, calculate the profit of the each locations? (Omit the "$" sign in your response.) Location Monthly Profits

A $

B $

C $

b-2. Which location would yield the greatest profits?

Explanation / Answer

Answer to question a :

Following may be noted :

Total Profit

= Total revenue – Total cost

= Total revenue – Total labour and material cost – Rent and equipment cost

= Price / Sandwich x N- Labour and material cost / sandwich x N – rent and equipment cost ( N = Number of sandwiches)

= 2.7.N – 1.9N – rent and equipment cost

= 0.8,N – Rent and equipment cost

For monthly profit =$10,000 ,

For location A :

10,000 = 0.8.N – Rent and equipment cost = 0.8,N – 5400

Or, 0.8.N = 15400

Or, N = 15400/0.8

Or, N =19250

For location B ;

10000 = 0.8N – 5700

Or, 0.8.N = 15700

Or, N = 15700/0.8

Or, N =19625

For location C :

10000 = 0.8.N – 5950

Or, 0.8.N = 15950

Or, N = 15950/0.8

Or, N =19937.50

MONTHLY VOLUME

Answer to question   B :

Since , Total profit = 0.8N – Rent and equipment cost

Monthly profit for location A = 0.8 x 21000 – 5400 = 16800 – 5400 = $11400

Monthly profit for location B = 0.8 x 23000 – 5700 = 18400 – 5700 = $12700

Monthly profit for location C = 0.8 x 24000 – 5950 = 19200 – 5950 = $13250

LOCATION

MONTHLY PROFIT ( $)

A

11400

B

12700

C

13250

MONTHLY VOLUME

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