Reference no: EM132344299

Question :

Longhorn TV presents the table below for contribution margin per unit, total contribution margin, and contribution margin ratio. In the space provided calculate each for scenario A, B and C. How much would net income increase if another 100 units were sold in scenario A?

	A	B	C
Number of units	1.400	9,500	5,620
Sales price per unit	$1.200	$3,700	$4,550
Variable Cost per unit	$     610	$                880	$ 1,665
Calculate
Contribution margin per unit	$590
Total contribution margin
Contribution margin ratio	49.17%	1.

Calculate

Contribution margin per unit $590

Total contribution margin

Contribution margin ratio 49.17% 1.

For scenario A, how much would net income increase if another 100 units were sold? 100 x $590 = $59,000

Owner Joan Garcia is considering franchising her Soup World restaurant concept. She believes customers will pay $9.00 for a large bowl of soup. Variable costs are $3,00 per bowl. Joan estimates monthly fixed cost for a franchise at $9,500.

Requirement 1 - Use the contribution margin ratio to find a franchise's breakeven sales in dollars.

Formula to use:___________________________________

Calculations: $9,500 /66.67% = $ 14.249 in sales to breakeven

$6 / $9 (see OR middle of page 3)

Requirement 2 - Joan believes most locations could generate $37,000 in monthly sales. Is franchising a good idea

for Joan if franchisees want a minimum monthly operation income (target profit) of $14,500?

Formula to use:____________________________________

Calculations: _____________________________ = $ 2.________________________________________ required Sales

Yes, it is a good idea since required sales to hit the target of $14,500 is less than the expected month sales of $37.000