A potential franchisee of Subway Sandwich Shop Inc.The company is in the process of developing a business plan to present to potential investors.Following are various projected cost data for the operation:

Question

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The average order sells for $4,with food cost of $2.
Required:
(1)What is the contribution of each sale toward covering fixed expenses?
(2)What is the projected monthly breakeven point in units (round up to nearest whole unit)?
(3)The potential franchisee has a target before-tax net profit of $2,000 per month.What level of sales (in units and in dollars)must be achieved (round up to nearest whole unit)?
(4)The potential franchisee has a target after-tax net profit of $1,800 per month.What level of sales (in units and in dollars)must be achieved if the tax rate is 35% (round up to nearest whole unit)?
(5)What is the operating leverage of this sandwich shop at the target before-tax profit of $2,000? Round your answer to 2 decimal places.
(6)What would be the percentage change in net income if sales dollars are increased by 5%?
Please see Feedback for answers.
 Feedback: (1) 11ea6e70_bcc6_82be_8f54_d528b6e33721_TB1699_00 (2)Monthly fixed expenses: $500 + $500 + $250/12 + $2,000 + $400 + $1,500/12 = $3,545.83 BE: $3,545.83/$1.58 = 2,244.19,round to 2,245 unit sales (3)BE units: ($3,545.83 + $2,000)/$1.58 = 3,510.01,round to 3,511 units BE dollars: 3,511 x $4 = $14,044 (4)BE units: [$3,545.83 + ($1,800/.65)]/$1.58 = 3,996.87,round to 3,997 units BE dollars: 3,997 x $4 = $15,988 (5)Operating leverage = contribution margin/net income = (3,511 x $1.58)/$2,000 = 2.77 (5).05 x 2.77 = 13.9% increase in net income.

A Potential Franchisee of Subway Sandwich Shop Inc