Refer to Noodle Time in E7-26A. Mason did franchise her restaurant concept. Because of Noodle Time’s success, Noodles ‘n More has come on the scene as a competitor. To maintain its market share, Noodle Time will have to lower its sales price to \($6.00\) per bowl. At the same time, Noodle Time hopes to increase each restaurant’s volume to 6,000 bowls per month by embarking on a marketing campaign. Each franchise will have to contribute \($500\) per month to cover the advertising costs. Prior to these changes, most locations were selling 5,500 bowls per month.

Requirements:

1. What was the average restaurant’s operating income before these changes?

2. Assuming that the price cut and advertising campaign are successful at increasing volume to the projected level, will the franchisees still earn their target profit of \($7,000\) per month? Show your calculations.

Data From E7-26A:-

Owner Izabella Mason is considering franchising her Noodle Time restaurant concept.
She believes people will pay \($6.50\) for a large bowl of noodles. Variable costs are \($1.95\) a bowl. Mason estimates monthly fixed costs for franchisees at \($8,400\).

Requirements:

• Find a franchisee’s breakeven sales in dollars.
• Is franchising a good idea for Mason if franchisees want a minimum monthly operating income of \($7,000\) and Mason believes that most locations could generate \($26,000\) in monthly sales?