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 $1.30 per sandwich. Sandwiches sell for $2.10 each in all locations. Rent and equipment costs would be $5,100 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 $8,500. (Do not round intermediate calculations. Round your answer to the nearest whole number.) Location Monthly Volume A 14875 14875 Incorrect B 15437 15437 Incorrect C 15750 15750 Incorrect b-1. If expected sales at A, B, and C are 19,500 per month, 21,500 per month, and 22,500 per month, respectively, calculate the profit of the each locations? (Omit the "$" sign in your response.) Location Monthly Profits A $ Not attempted B $ Not attempted C $ Not attempted b-2. Which location would yield the greatest profits? Location B Location A Location C

Explanation / Answer

Let number of units sold in a month = N

Monthly profit will be expressed as following :

Monthly profit

= Total revenue – Total cost

= Total revenue – Total labor and material cost – Fixed cost ( i.e Rent and equipment cost)

= Price / unit x Number of units sold – Labor & material cost / unit x Number of units sold – Fixed cost ( Rent and equipment cost )

= $2.10.N - $1.3N – Fixed cost

= $0.8.N – Fixed cost

Fixed cost for location A = $5100,

Since target monthly profit = $8500

Therefore,

$8500 = 0.8.N – 5100

Or, 0.8.N = $13600

Or, N = 17000

Fixed cost for location B = $5550

Since target monthly profit = $8500

Therefore,

$8500 = 0.8.N – 5550

Or, 0.8.N = $14050

Or, N = 17562.50

Fixed cost for location C = $5800

Since target monthly profit = $8500

Therefore,

$8500 = 0.8.N – 5800

Or, 0.8.N = $14300

Or, N = 17875

MONTHLY VOLUME – LOCATION A : 17000

MONTHLY VOLUME – LOCATION B :17562.50

MONTHLY VOLUME – LOCATION C : 17875

When expected sales = N = 19500 / month

Profit for location A = 0.8N – 5100 = 0.8 X 19500 – 5100 = $15600 - $5100 = $10500

Profit for location B = 0.8N – 5550 = 0.8 X 19500 – 5550 = $15600 – $5550 = $10050

Profit for location C = 0.8.N – 5800 = $15600 - $5800 = $9800

Location A yields the highest profit of $10050 per month

LOCATION A WOULD YILED GREATEST PROFITS

MONTHLY VOLUME – LOCATION A : 17000

MONTHLY VOLUME – LOCATION B :17562.50

MONTHLY VOLUME – LOCATION C : 17875

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.