The owner of Genuine Subs, Inc., hopes to expand the present operation by adding
ID: 449764 • Letter: T
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 $1.50 per sandwich. Sandwiches sell for $2.52 each in all locations. Rent and equipment costs would be $5,040 per month for location A, $5,580 per month for location B, and $5,770 per month for location C.
a. Determine the volume necessary at each location to realize a monthly profit of $10,500. (Do not round intermediate calculations. Round your answer to the nearest whole number.)
b-1. If expected sales at A, B, and C are 20,400 per month, 22,500 per month, and 23,000 per month, respectively, calculate the profit of the each locations? (Omit the "$" sign in your response.)
b-2. Which location would yield the greatest profits?
*Location A
*Location B
*Location C
Location Monthly Volume A B CExplanation / Answer
Given selling price P = $2.52 each
Variable cost Vc = $1.50 each
Fixed Cost F= $5,040 per month for location A
= $5,580 per month for location B
= $5,770 per month for location C.
Profit = (P - VC )*Q - FC
Q = Quantity
a) Determine the volume necessary at each location to realize a monthly profit of $10,500.
given profit $10,500
Q = (profit +Fc)/(P-Vc)
Q at Location A , B, C
QA = (10,500 + 5040)/(2.52-1.5) = 15540/ 1.02 = 15235. 29 units = 15235 units
QB=
(10,500 + 5580)/(2.52-1.5) = 16080/ 1.02 = 15235.71 units = 15234 units
QC= (10,500 + 5770)/(2.52-1.5) = 16270/ 1.02 = 15950.98 units = 15951 units
b) If expected sales at A, B, and C are 20,400 per month, 22,500 per month, and 23,000 per month, respectively, calculate the profit of the each locations?
Profit = (P - VC )*Q - FC
ProfitA = (2.52-1.5)*20,400 - 5040
= $15,768
ProfitB = (2.52-1.5)*22,500 - 5580
= $17,370
ProfitC = (2.52-1.5)*23,000 - 5770
= $17,690
Location C would yield the greatest profits
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