Chapter 20: Q16RQ (page 1119)
Of the three approaches to calculate sales required to achieve the breakeven point, which one(s) calculate the required sales in units and which one(s) calculate the required sales in dollars?
Answer
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A furniture manufacturer specializes in wood tables. The tables sell for \(100 per unit and incur \)40 per unit in variable costs. The company has \(6,000 in fixed costs per month. Calculate the breakeven point in units under each independent scenario.
14. Variable costs increase by \)10 per unit.
15. Fixed costs decrease by $600.
16. Sales price increases by 10%.
What is contribution margin?
A chain of convenience stores has one manager per store who is paid a monthly salary. Relative to Store #36 located in Atlanta, Georgia, is the manager’s salary fixed or variable? Why?
Owner Shan Mu is considering franchising her Noodles by Murestaurant concept. She believes people will pay \(10.00 for a large bowl ofnoodles. Variable costs are \)5.00 per bowl. Mu estimates monthly fixed costsfor a franchise at \(9,000.
Requirements
1. Use the contribution margin ratio approach to find a franchise’s breakevensales in dollars.
2. Mu believes most locations could generate \)61,500 in monthly sales. Isfranchising a good idea for Mu if franchisees want a minimum monthlyoperating income of $21,000? Explain your answer.
Question: What is target profit?
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