The Subway Sandwich Shop, Inc. is seeking to sell new franchises for its business. The company is in the process of developing a business plan to present to potential investors. Following are various projected cost data for a typical sandwich shop: The average order (sandwich) sells for $4, with food cost of $2.
Required:
1. What is the contribution of each order (sandwich) toward covering fixed expenses?
2. What is the projected monthly breakeven point in units (round your answer up, to nearest whole unit)?
3. A potential franchisee has a target before-tax net profit of $2,000 per month. What level of sales (in units and in dollars, per month) must be achieved to meet the franchisee's profit goal (round up, to nearest whole unit)?
4. This potential franchisee has a target after-tax net profit of $1,800 per month. To achieve this profit objective, what level of sales (in units and in dollars, per month) must be achieved if the tax rate is 35% (roundup to nearest whole unit)?
5. What is the degree of operating leverage (DOL) of a typical sandwich shop at the volume level needed to achieve a targeted before-tax profit (i.e., an operating income) of $2,000 per month? Round your answer to 2 decimal places.
6. From the sales volume level needed to achieve the monthly pre-tax profit goal of $2,000, what would be the percentage change in pre-tax (i.e., operating) income if sales increased by 5%?

Question

The Subway Sandwich Shop, Inc. is seeking to sell new franchises for its business. The company is in the process of developing a business plan to present to potential investors. Following are various projected cost data for a typical sandwich shop:  The average order (sandwich) sells for $4, with food cost of $2.
Required:
1. What is the contribution of each order (sandwich) toward covering fixed expenses?
2. What is the projected monthly breakeven point in units (round your answer up, to nearest whole unit)?
3. A potential franchisee has a target before-tax net profit of $2,000 per month. What level of sales (in units and in dollars, per month) must be achieved to meet the franchisee's profit goal (round up, to nearest whole unit)?
4. This potential franchisee has a target after-tax net profit of $1,800 per month. To achieve this profit objective, what level of sales (in units and in dollars, per month) must be achieved if the tax rate is 35% (roundup to nearest whole unit)?
5. What is the degree of operating leverage (DOL) of a typical sandwich shop at the volume level needed to achieve a targeted before-tax profit (i.e., an operating income) of $2,000 per month? Round your answer to 2 decimal places.
6. From the sales volume level needed to achieve the monthly pre-tax profit goal of $2,000, what would be the percentage change in pre-tax (i.e., operating) income if sales increased by 5%?

Quizplus · Accepted Answer

The Answer of The Subway Sandwich Shop, Inc. is seeking to sell new franchises for its business. The company is in the process of developing a business plan to present to potential investors. Following are various projected cost data for a typical sandwich shop:  The average order (sandwich) sells for $4, with food cost of $2.
Required:
1. What is the contribution of each order (sandwich) toward covering fixed expenses?
2. What is the projected monthly breakeven point in units (round your answer up, to nearest whole unit)?
3. A potential franchisee has a target before-tax net profit of $2,000 per month. What level of sales (in units and in dollars, per month) must be achieved to meet the franchisee's profit goal (round up, to nearest whole unit)?
4. This potential franchisee has a target after-tax net profit of $1,800 per month. To achieve this profit objective, what level of sales (in units and in dollars, per month) must be achieved if the tax rate is 35% (roundup to nearest whole unit)?
5. What is the degree of operating leverage (DOL) of a typical sandwich shop at the volume level needed to achieve a targeted before-tax profit (i.e., an operating income) of $2,000 per month? Round your answer to 2 decimal places.
6. From the sales volume level needed to achieve the monthly pre-tax profit goal of $2,000, what would be the percentage change in pre-tax (i.e., operating) income if sales increased by 5%?