McSandwich is a chain of restaurants and its board of directors has set a goal f
ID: 2475795 • Letter: M
Question
McSandwich is a chain of restaurants and its board of directors has set a goal for top manages to earn a pretax return on assets (that is pretax profit / total assets) of 20% in this year. The firm's assets total $20 million and its annual fixed costs total $20 million. The average customer spends $10 on retail purchases in the restaurant and the average cost per sale is $4. How many transactions (customer purchases) at an average of $10 each must be made to achieve the 20% target return on assets?
2,500,000
6,250,000
4,000,000
5,500,000
7,500,000
Explanation / Answer
McSAndwich Details Amt $ Total Assets 20,000,000 Required pretax return on Assets @20%= 4,000,000 Fixed cost per year 20,000,000 Total Contribution Required =20 M+4M= 24,000,000 Unit Contribution Margin Calculation Selling Price per transaction= 10 Less variable cost per transaction= 4 Contribution Margin per transaction= 6 So Required no of transactions=24M/6= 4,000,000 So 4000,000 transactions to be made for achieving the required return.