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 $1.80 per sandwich. Sandwiches sell for $2.65 each in all locations. Rent and equipment costs would be $5,010 per month for location A. $5,550 per month for location B. and $5,800 per month for location C. a. Determine the volume necessary at each location to realize a monthly profit of $10,000. b-1. If expected sales at A. B. and C are 20.800 per month. 23.000 per month, and 23,200 per month, respectively, calculate the profit of the each locations? b-2. Which location would yield the greatest profits? Location A Location C Location B

Explanation / Answer

Location A Location B Location C Sale Price Per unit (A) $2.65 $2.65 $2.65 Variable Cost per unit (B) $1.80 $1.80 $1.80 Contribution per unit (C = A - B) $0.85 $0.85 $0.85 Fixed Cost (D) $5,010.00 $5,550.00 $5,800.00 Monthly Profit Required ( E) $10,000.00 $10,000.00 $10,000.00 Total Contribution Coverage Required (F = D+E) $15,010.00 $15,550.00 $15,800.00 No of units/ Volume Required (F/C) 17659 18294 18588 Location A Location B Location C Sale Price Per unit (A) $2.65 $2.65 $2.65 Variable Cost per unit (B) $1.80 $1.80 $1.80 Contribution per unit (C = A - B) $0.85 $0.85 $0.85 Units Sold (D) 20800 23000 23200 Total Contribution (E = C*D) $17,680.00 $19,550.00 $19,720.00 Fixed Costs (F) $5,010.00 $5,550.00 $5,800.00 Monthly Profit (E-F) $12,670.00 $14,000.00 $13,920.00 Location B yields greatest profit with $14000

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