Qquestion 1

Owner SueLo

is considering franchising her HappyNoodles restaurant concept. She believes people will pay

$6.50

for a large bowl of noodles. Variable costs are $1.95

a bowl. Lo estimates monthly fixed costs for franchisees at

$8,400...

.

Requirement 1. Find a franchisee's break even sales in dollars.

Begin by identifying the formula to compute the sales in units at various levels of operating income using the contribution margin approach.

Fixed expenses

+

Operating income

) /

Contribution margin ratio

=Break even sales in dollars

The break even sales in dollars is $_____?

.

Requirement 2. Is franchising a good idea for Lo

if franchisees want a minimum monthly operating income of

$7,000 and Lo believes that most locations could generate $26,000

in monthly sales?

The target sales in dollars to reach the minimum monthly operating income for franchises is $_____?

SueLo's

franchising concept

is a good idea. She expects most locations

could sell more than

the sales required to earn the target profit.

Hi. I tried the formula. Maybe I didn't plug it in right? Please let me know if the formula is right. Thanks.