1. When Arnold opened his auto parts shop, he decided to buy a franchise. His franchise obligations include 3% of his gross sales as a royalty and 2% of his gross sales for cooperative advertising charges. The average cost of the parts he sells is 60% of his retail sales price. His parts shop is at an attractive location, he employs five people, and he pays himself well. His overhead is substantial - $70,000 per month.
2. How much (dollar amount) does he need to sell to break even?

1. If Arnold in problem 3 (above) had opened an independent parts store, not as part of a franchise, he would have not had to pay the fees (3% royalties and 2% coop advertising) and his overhead would be less by $2,000 per month (saving on the interest from the loan he borrowed to buy the franchise rights). However, his cost of goods sold for parts would have gone up to 70% of his retail price.
2. What would his break even sales need to be if he had not purchased the franchise?
3. Would he have been better off without the franchise? Why or why not?