Problem 8-2 The owner of Genuine Subs, Inc., hopes to expand the present operati
ID: 349856 • 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 $1.20 per sandwich. Sandwiches sell for $2.00 each in all locations. Rent and equipment costs would be $5,050 per month for location A, $5,525 per month for location B and $5,775 per month for location C. a. Determine the volume necessary at each location to realize a monthly profit of $8,250. (Do not round intermediate calculations Round your answer to the nearest whole number.) Location Monthly Volu me b-1. If expected sales at A, B, and C are 19,250 per month, 21,250 per month, and 22,250 per month, respectively, calculate the profit of the each locations? (Omit the "$" sign in your response.) Location Monthly Profits b-2. Which location would yield the greatest profits? Location B Location A Location CExplanation / Answer
Problem 8-2
For each location Variable cost (VC) = $1.20
For each location selling price(SP) = $2.00
Fixed cost (FC) for each location are
a) If profit (P) = $8250,let volume of output = Q
For location A:
P = Q(SP - VC) - FC
=> 8250 = Q(2.00-1.20) - 5050
=> 8250 = 0.8Q - 5050
=> 0.8Q = 8250+5050
=> 0.8Q = 13300
=> Q = 13300/0.8
=> Q = 16625
For location B:
P = Q(SP - VC) - FC
=> 8250 = Q(2.00-1.20)-5525
=> 8250 = 0.8Q - 5525
=> 0.8Q = 8250+5525
=> 0.8Q = 13775
=> Q = 13775/0.8
=> Q = 17218. 75 or rounded to 17219
For location C:
P =Q(SP - VC) - FC
=> 8250 = Q(2.00-1.20)-5775
=> 8250 = 0.8Q - 5775
=> 0.8Q = 8250+5775
=> 0.8Q = 14025
=> Q = 14025/0.8
=> Q = 17531. 25 or rounded to 17531
b-1) If the volume of output (Q) for A = 19250,B=21250 and C=22250
Profit for location A = Q(SP - VC) - FC
= 19250(2.00-1.20) - 5050
= (19250 x 0.8)-5050
= 15400-5050
= $10350
Profit for location B = Q(SP - VC) - FC
= 21250(2.00-1.20)-5525
= (21250 x 0.8)-5525
= 17000-5525
= $11475
Profit for location C = Q(SP - VC) - FC
= 22250(2.00-1.20)-5775
= (22250 x 0.8)-5775
= 17800-5775
= $12025
b-2) So location C would yield the greatest profit of $12025