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 $1.60 per sandwich. Sandwiches sell for $2.40 each in all locations. Rent and equipment costs would be $5,250 per month for location A, $5,625 per month for location B, and $5,875 per month for location C. a. Determine the volume necessary at each location to realize a monthly profit of $9,250. (Do not round intermediate calculations. Round your answer to the nearest whole number.) Location Monthly Volume A B с b-1. If expected sales at A, B, and Care 20,250 per month, 22,250 per month, and 23,250 per month, respectively, calculate the profit of the each locations? (Omit the "$" sign in your response.) Monthly Profits Location A B $ с $ b-2. Which location would yield the greatest profits? O Location B O Location A O Location C

Answer 1

a.

Location	A	B	C
Variable cost	$1.6	$1.6	$1.6
Salesprice	$2.4	$2.4	$2.4
Rent and equipment costs	5250	5625	5875
Profit	9250	9250	9250
Volume =(Rent +profit)/(sales price -variable cost)	(5250+9250)/(2.4-1.6) = 14500/0.8 = 18,125	(5625+9250)/(2.4-1.6) = 14875/0.8 = 18593.75	(5875+9250)/(2.4-1.6) = 15125/0.8 = 18906.25

Therefore Volume for

A = 18,125

B = 18,594

C = 18,906

b. Based on the new volume for each location,

Profit = [Sales volume * (sales price - variable cost)] - Rent

Location	A	B	C
Variable cost	1.6	1.6	1.6
Salesprice	2.4	2.4	2.4
Rent and equipment costs	5250	5625	5875
Salesprice - variable cost	0.8	0.8	0.8
Volume	20,250	22,250	23,250
Profit = [Sales volume * (sales price - variable cost)] - Rent	[20,250 * 0.8]-5250 =$10,950	[22,250 * 0.8]-5625 =$12,175	[23,250 * 0.8]-5875 =$12,725

Therefore Profit for

A = $10,950

B = $12,175

C = $12,725

b-2. Location C would yield the highest profits with $12,725