Paul Swanson has an opportunity to acquire a franchise from The Yogurt Place, In
ID: 2474031 • Letter: P
Question
Paul Swanson has an opportunity to acquire a franchise from The Yogurt Place, Inc., to dispense frozen yogurt products under The Yogurt Place name. Mr. Swanson has assembled the following information relating to the franchise:
A suitable location in a large shopping mall can be rented for $3,000 per month.
Remodeling and necessary equipment would cost $288,000. The equipment would have a 15-year life and an $19,200 salvage value. Straight-line depreciation would be used, and the salvage value would be considered in computing depreciation.
Based on similar outlets elsewhere, Mr. Swanson estimates that sales would total $330,000 per year. Ingredients would cost 20% of sales.
Operating costs would include $73,000 per year for salaries, $3,800 per year for insurance, and $30,000 per year for utilities. In addition, Mr. Swanson would have to pay a commission to The Yogurt Place, Inc., of 14.0% of sales.
Prepare a contribution format income statement that shows the expected net operating income each year from the franchise outlet.
Paul Swanson has an opportunity to acquire a franchise from The Yogurt Place, Inc., to dispense frozen yogurt products under The Yogurt Place name. Mr. Swanson has assembled the following information relating to the franchise:
Explanation / Answer
Contribution format income statement
Sales revenue
$ 330,000
Less: Variable costs
Ingredients costs (330000*20%)
$ (66,000)
Sales commission (330000*14%)
$ (46,200)
Contribution Margin
$ 217,800
Less: Fixed expenses:
Rent expense (3000* 12 months)
$ (36,000)
Depreciation Expense - Equipment
Formula : (cost - salvage value ) / life
= (288000-19200) / 15
$ (17,920)
Salaries
$ (73,000)
Insurance
$ (3,800)
Utilities
$ (30,000)
Net operating income
$ 57,080
Contribution format income statement
Sales revenue
$ 330,000
Less: Variable costs
Ingredients costs (330000*20%)
$ (66,000)
Sales commission (330000*14%)
$ (46,200)
Contribution Margin
$ 217,800
Less: Fixed expenses:
Rent expense (3000* 12 months)
$ (36,000)
Depreciation Expense - Equipment
Formula : (cost - salvage value ) / life
= (288000-19200) / 15
$ (17,920)
Salaries
$ (73,000)
Insurance
$ (3,800)
Utilities
$ (30,000)
Net operating income
$ 57,080