Owner Sue Lan is considering franchising her Noodles restaurant concept. She bel

Question

Owner Sue Lan is considering franchising her Noodles restaurant concept. She believes people will pay $150.00 for a large bowl of noodles. Variable costs are $60 per bowl. Lan estimates monthly fixed costs for a franchise at $126,000.

1. Use the contribution margin ratio approach to find a franchise's breakeven sales in dollars. (round your answer to 2 decimal places)

2. Lan believes most locations could generate $362500 in monthly sales. Is franchising a good idea for Lan if franchisees want a minimum monthly operating income of $90,000?

Explanation / Answer

breakeven point in sales(units)= fixed cost/sales-variable

=126000/(150-60)=$1400

Breakeven point sales dollars= 140*150=$210,000

2)As monthly sales $362,500 then units= 362500/150=2417 units

Operating income= 362500-(60*2417)-126000=$91,480

These is higher than required 90,000 so they can go head giving franchising

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