Find breakeven and target profit volume (Learning Objectives 1, 2)

Owner Shan Lo is considering franchising her Happy Wok restaurant concept. She believes people will pay $5 for a large bowl of noodles. Variable costs are $1.50 a bowl. Lo estimates monthly fixed costs for franchisees at $8,400.

Requirements 1. Use the contribution margin ratio shortcut approach to find a franchisee’s breakeven sales in dollars.

2. Is franchising a gbod idea for Lo if franchisees want a minimum monthly oper¬ ating income of $8,750 and Lo believes that most locations could generate $25,000 in monthly sales?