Owner Shan Lois considering franchising her Noodles for a restaurant concept. She believes people will pay

$ 10.50 for a large bowl of noodles. Variable costs are $ 6.30 per bowl. Lo estimates monthly fixed costs for a franchise at $10,500.

Requirements

1.Use the contribution margin ratio approach to find afranchise's breakeven sales in dollars.

2.Lo believes most locations could generate $63,000

in monthly sales. Is franchising a good idea for

Lo if franchisees want a minimum monthly operating income of

13,500?

a) Break-even sales (BEP)=  $15,750

b) Yes, the  franchise is good because the $63,000 sales that be generated by most locations is higher than the minimum sales revenue of $36,000 required to achieve the the target profit

Explanation:

a)

Contribution margin ratio= (sales-variable cost/sale )× 100

Break -even sales (BEP) = Fixed cost/Contribution margin ratio

CMR = (10.50 -6.30)/ 6.30= 66.7%

BEP= 10,500/66.7%= $15,750

b)

To generate a minimum operating income of $13,500, the franchisee will need to make sales worth:

Sales revenue to achieve pre-determined income=( Fixed cost + Target income)/CMR

= (10,500.  + 13,500)/0.667

= $36,000

Yes the  franchise is good because the  $63,000 sales that be generated by most locations is higher than the minimum sales revenue of $36,000 required to achieve the the target profit

(a) when insurance is obtained through a reciprocal insurer, the insureds are sharing the risk of loss with other subscribers of that reciprocal.

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