Before franchising her Happy Wok restaurant concept, owner Fay Woo had made the following assumptions. (Click the icon to view the assumptions.) (Click the icon to view more information.) Read the requirements. More info 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: Woo 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. Fay Woo estimated monthly fixed costs for franchisees at $8,750. Franchisees wanted a minimum monthly operating income of $7,350. Print Done 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 earn 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 Less: Operating income Cutting the sales price and advertising allow the franchise owners to earn their target profits of $7,350 per month. More info Woo did franchise her restaurant concept. Because of Happy Wok' success, Value Noodles has come on the scene as a competitor. To maintain its market share, Happy Wok will have to lower its sales price to $4.00 per bowl. At the same time, Happy Wok hopes to increase each restaurant's volume to 8,000 bowls per month by embarking on a marketing campaign. Each franchise will have to contribute $600 per month to cover the advertising costs. Prior to these changes, most locations were selling 7,500 bowls per month. Print Done