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Before franchising her Happy Wok restaurant concept, owner Lei Wong had made the following assumptions. Wong believed people would pay $ 5 . 7 5
Before franchising her Happy Wok restaurant concept, owner Lei Wong had made the following assumptions. Wong believed people would pay $ for a large bowl of noodles. Variable costs would be $ a bowl, creating a contribution margin of $ per bowl. Lei Wong estimated monthly fixed costs for franchisees at $ Franchisees wanted a minimum monthly operating income of $ Wong did franchise her restaurant concept. Because of Happy Wok's success, Noodles has come on the scene as a competitor. To maintain its market share, Happy Wok will have to lower its sales price to $ per bowl. At the same time, Happy Wok hopes to increase each restaurant's volume to bowls per month by embarking on a marketing campaign. Each franchise will have to contribute $ per month to cover the advertising costs. Prior to these changes, most locations were selling bowls per month.
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What was the average restaurant's operating income before these changes?
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 $ per month? Show your calculations.
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