Find out breakeven and target profit volume
Owner Kay Fay is considering franchising her Oriental Express restaurant concept. She thinks people will pay $5.50 for the large bowl of noodles. Variable costs are $2.75 a bowl. Fay approximates monthly fixed costs for franchisees at $8,750.
1. Employ the contribution margin ratio shortcut approach to find out franchisees breakeven sales in term of dollars.
2. Is franchising a good idea for Fay if franchisees want a minimum monthly operating income of $3,500 and Fay believes most locations could generate $24,000 in monthly sales?