Problem 8-2 The owner of Genuine Subs, Inc., hopes to expand the present operati
ID: 348845 • Letter: P
Question
Problem 8-2 The owner of Genuine Subs, Inc., hopes to expand the present operation by adding one new outlet. She has studied three locations. Each would have the same labor and materials costs (food, serving containers, napkins, etc.) of $1.60 per sandwich. Sandwiches sell for $2.40 each in all locations. Rent and equipment costs would be $5,250 per month for location A, $5,625 per month for location B, and $5,875 per month for locatlon C. a. Determine the volume necessary at each location to realize a monthly profit of $9,250·(Do not round Intermediate calculations. Round your answer to the nearest whole number) Location Month ly Volume b-1. If expected sales at A, B, and C are 20,250 per month, 22,250 per month, and 23,250 per month, respectively, calculate the profit of the each locations? (Omit the "$" sign in your response.) Location Monthly Profits b-2. Which location would yield the greatest profits? Location B O Location A Location CExplanation / Answer
For each location Variable cost (VC) = $1.60
For each location selling price(SP) = $2.40
Fixed cost (FC) for each location are
a) If profit (P) = $9250,let volume of output = Q
For location A:
P = Q(SP - VC) - FC
=> 9250 = Q(2.40-1.60) - 5250
=> 9250 = 0.8Q - 5250
=> 0.8Q = 9250+5250
=> 0.8Q = 14500
=> Q = 14500/0.8
=> Q = 18125
For location B:
P = Q(SP - VC) - FC
=> 9250 = Q(2.40-1.60)-5625
=> 9250 = 0.8Q - 5625
=> 0.8Q = 9250+5625
=> 0.8Q = 14875
=> Q = 14875/0.8
=> Q = 18594
For location C:
P =Q(SP - VC) - FC
=> 9250 = Q(2.40-1.60)-5875
=> 9250 = 0.8Q - 5875
=> 0.8Q = 9250+5875
=> 0.8Q = 15125
=> Q = 15125/0.8
=> Q = 18906
b-1) If the volume of output (Q) for A = 20250,B=22250 and C=23250
Profit for location A = Q(SP - VC) - FC
= 20250(2.40-1.60) - 5250
= (20250 x 0.8)-5250
= 16200-5250
= $10950
Profit for location B = Q(SP - VC) - FC
= 22250(2.40-1.60)-5625
= (22250 x 0.8)-5625
= 17800-5625
= $12175
Profit for location C = Q(SP - VC) - FC
= 23250(2.40-1.60)-5875
= (23250 x 0.8)-5875
= 18600-5875
= $12725
b-2) So location C would yield the greatest profit of $12725