The owner of Genuine Subs, Inc., hopes to expand the present operation by adding
ID: 435270 • 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 $2.90 per sandwich. Sandwiches sell for $3.70 each in all locations. Rent and equipment costs would be $5,900 per month for location A, $5,950 per month for location B, and $6,200 per month for location C a. Determine the volume necessary at each location to realize a monthly profit of $12,500·(Do not round intermediate calculations. Round your answer to the nearest whole number.) Location Monthly Volume b-1. If expected sales at A, B, and C are 23,500 per month, 26,500 per month, and 25,500 per month, respectively, calculate the profit of the each locations? (Omit the "$" sign in your response.) Location Monthly Profits b-2. Which location would yield the greatest profits? Location A LocationC Location BExplanation / Answer
Given Values:
Location A - Rent and equipment cost = $5,900 per month
Location B - Rent and equipment cost = $5,950 per month
Location C - Rent and equipment cost = $6,200 per month
Labor and materials cost = $2.90 per sandwich
Sandwich selling cost = $3.70 per sandwich
Solution:
(a) For a monthly profit of $12,500, volume required at each location is calculated as below:
Total profit = Total Revenue - Total costs
Total profit = (Selling price x Volume) - [Rent and equipment cost + (Labor and materials cost x volume)]
Let volume of sandwiches sold be represented by V,
Total profit = (Selling price x V) - [Rent and equipment cost + (Labor and materials cost x V)]
Location A:
Required profit = $12,500
$12500 = ($3.70 V) - [$5900 + ($2.90 V)]
$12500 = $3.70 V - $5900 - $2.90 V
0.8 V = 18,400
Va = 23,000 sandwiches
Location B:
Required profit = $12,500
$12500 = ($3.70 V) - [$5950 + ($2.90 V)]
$12500 = $3.70 V - $5950 - $2.90 V
0.8 V = 18,450
Vb = 23,063 sandwiches
Location C:
Required profit = $12,500
$12500 = ($3.70 V) - [$6200 + ($2.90 V)]
$12500 = $3.70 V - $6200 - $2.90 V
0.8 V = 18,700
Vc = 23,375 sandwiches
For a monthly profit of $12,500, volume required at each location is:
Location A = 23,000
Location B = 23,063
Location C = 23,375
(b-1)
Location A:
Expected sales (V) = 23,500 per month
Total profit = (Selling price x V) - [Rent and equipment cost + (Labor and materials cost x V)]
Total profit = $3.70 V - $5900 - $2.90 V
Total profit = ($3.70 x 23500) - $5900 - ($2.90 x 23500)
Total profit = $12,900
Location B:
Expected sales (V) = 26,500 per month
Total profit = (Selling price x V) - [Rent and equipment cost + (Labor and materials cost x V)]
Total profit = $3.70 V - $5950 - $2.90 V
Total profit = ($3.70 x 26500) - $5950 - ($2.90 x 26500)
Total profit = $15,250
Location C:
Expected sales (V) = 25,500 per month
Total profit = (Selling price x V) - [Rent and equipment cost + (Labor and materials cost x V)]
Total profit = $3.70 V - $6200 - $2.90 V
Total profit = ($3.70 x 25500) - $6200 - ($2.90 x 25500)
Total profit = $14,200
(b-2) From the above calculations, greatest profit is for Location B
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