Problem 8-2 The owner of Genuine Subs, Inc., hopes to expand the present operati
ID: 371542 • 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 $2.30 per sandwich. Sandwiches sell for $3.10 each in all locations. Rent and equipment costs would be $5,600 per month for location A, $5,800 per month for location B, and $6,050 per month for location C.
a. Determine the volume necessary at each location to realize a monthly profit of $11,000. (Do not round intermediate calculations. Round your answer to the nearest whole number.)
Location Monthly Volume
A
B
C
b-1. If expected sales at A, B, and C are 25,000 per month, 22,000 per month, and 24,000 per month, respectively, calculate the profit of the each locations? (Omit the "$" sign in your response.)
Location Monthly Profits
A $
B $
C $
b-2. Which location would yield the greatest profits?
Location C
Location B
Location A
Explanation / Answer
a) Profit = Revenue - Cost
Revenue = 3.1*Quantity
Cost = Fixed cost + variable cost
Let at x quantity, profit is 11000 for location:
Location A:
11000 = 3.1*x - (5600 + 2.3*x)
x = 20,750
Location B:
11000 + 3.1*x - (5800 + 2.3*x)
x = 21,000
Location C:
11000 = 3.1*x - (6050+ 2.3*x)
x = 21,312.5
b) Profit:
A = 3.1*25000 - (5600 + 2.3*25000) = 14,400
B = 3.1*22000 - (5800+ 2.3*22000) = 11,800
C = 3.1*24000 - (6050 + 2.3*24000) = 13,150
Location A will yield the greatest profit