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 $2.00 per sandwich. Sandwiches sell for $2.80 each in all locations. Rent and equipment costs would be $5,450 per month for location A, $5,725 per month for location B, and $5,975 per month for location C. a. Determine the volume necessary at each location to realize a monthly profit of $10,250. (Do not round intermediate calculations. Round your answer to the nearest whole number.) Location Monthly Volume A B C b-1. If expected sales at A, B, and C are 24,250 per month, 21,250 per month, and 23,250 per month, respectively, calculate the profit of the each locations? (Omit the "$" sign in your response.) Location Monthly Profits A $ B $ C $ b-2. Which location would yield the greatest profits? Location C Location B Location A

Explanation / Answer

For each location

Fixed cost (FC) for

a) If profit = P=10250 ,let volume of output = Q

P = Q(SP-VC) - FC

=> 10250 = Q(2.80-2) - 5450

=> 10250 = Q0.80 - 5450

=> 0.80Q = 10250+5450

=> 0.80Q = 15700

=> Q = 15700/0.80

=> Q = 19625

P = Q(SP-VC) - FC

=> 10250 = Q(2.80-2)-5725

=> 10250 = 0.80Q - 5725

=> 0.80Q = 10250+5725

=> 0.80Q = 15975

=> Q = 15975/0.80

=> Q = 19969

P = Q(SP-VC) - FC

=> 10250 = Q(2.80-2) - 5975

=> 10250 = 0.80Q - 5975

=> 0.80Q= 10250+5975

=> 0.80Q = 16225

=> Q = 16225/0.80

=> Q = 20281

b-1) For location A if the volume of output (Q) = 24250

Profit = Q (SP-VC) - FC = 24250(2.80-2)-5450 = (24250x0.80)-5450 = 19400-5450 = 13950

For location B if the volume of output(Q) = 21250

Profit = Q(SP-VC) - FC = 21250(2.80-2)-5725 = (21250x0.80)-5725 = 17000-5725 = 11275

For location C if the volume of output (Q) = 23250

Peofit = Q(SP-VC) - FC = 23250(2.80-2)-5975 = (23250x0.80)-5975 = 18600-5975 = 12625

b-2) So location A would yield the greatest profits of 13950

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