Question

#6

Owner Lei Wong is considering franchising her Happy Wok restaurant concept. She believes people will pay $4.75 for a large bowl of noodles. Variable costs are $1.90 a bowl. Wong estimates monthly fixed costs for franchisees at $8,850. Read the requirements Requirements come using the contribution margin approach ratio Breakeven sales in dollars 1. Find a franchisee's breakeven sales in dollars 2. Is franchising a good idea for Wong if franchisees want a minimum monthly operating income of $6,000 and Wong believes that most locations could generate $25,000 in monthly sales? operating income of $6,000 and Wong believes that m Done Print

Please solve and explain requirement 2

Answer 1

Answer

Target sales in dollars = $ 24,750

Calculations:

Desired sales = (Fixed Cost + Profit)/ Contribution ratio

=(8,850+6,000) / 60%

= $24,750

Proof:

	Total
Sales	$      24,750
Less: variable Cost	$         9,900
Contribution	$      14,850
Less: Fixed Cost	$         8,850
Net Income	$         6,000

In case of any doubt, please comment.