Owner Fay Woo is considering franchising her Happy Wok restaurant concept She be
ID: 2485416 • Letter: O
Question
Owner Fay Woo is considering franchising her Happy Wok restaurant concept She believes people will pay $6.50 for a large bowl of noodles. Variable costs are $1.95 a bowl Woo estimates monthly fixed costs for franchisees at $8,400. Requirements Find a franchisee's breakeven sales in dollars. Is franchising a good idea for Woo if franchisees want a minimum monthly operating income of $7,000 and Woo believes that most locations could generate $26,000 in monthly sales? Requirement 1. Find a franchisee's breakeven sales in dollars. Begin by identifying the formula to compute the sales in units at various levels of operating income of $7,000 and Woo believes that most approach. The breakeven sales in dollars is $ .Explanation / Answer
break even sales = fixed cost / contribution as % of sales
= 8400 / 70%
= $12000
Contribution = sales - VC
= 6.5 - 1.95 = 4.55
contribution as % of sales = 4.55 / 6.5 *100 = 70%
break even sales = (fixed cost + oprating income ) / contribution as % of sales
= (8400+ 7000) / 70%
= $22000
wow monthly sale = $ 26000 is greater than breakeven sales, therefore it is good idea
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