Before franchising her Happy Noodles restaurant, owner Sue Lo had made the following assumtions.

i More Info Lo believed people would pay $4.50 for a large bowl of noodles. Variable costs would be $1.35 a bowl creating a contribution margin of $3.15 per bowl. Sue Lo estimated monthly fixed costs for franchisees at $8,750. Franchisees wanted a minimum monthly operating income of $7,350. Print Done Lo did franchise her restaurant concept. Because of Happy Noodles' success, Noodles - n-More has come on the scene as a competitor. To maintain its market share, Happy Noodles will have to lower its sales price to $4.00 per bowl. At the same time, Happy Noodles 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. Requirement 1. What was the average restaurant's operating income before these changes? Identify the formula labels and compute the operating income before the changes. Times: Contribution margin Less: Operating income Requirement 2. Assuming that the price cut and advertising campaign are successful at increasing volume to the projected level, will the franchisees still eam their target profit of $7,350 per month? Show your calculations Identify the formula labels and compute the operating income after the changes. Times: Contribution margin Loss: Operating income Cutting the sales price and advertising allow the franchise owners to earn their target profits of $7,350 per month