Question

CVP Analysis .

Multi-level Contribution Margin Calculation: 7-Eleven target profit :

Fixed Cost per store $80,000 per year

Variable cost ratio 80%

Average Sale per customer visit $17.00

Average customer visits per week 1.5

Customers as portion of city population 5%

At what city population can a single 7-Eleven earn a profit of $40,000?

Answer 1

Note 1 : Computation of required total sales

Total Contribution = Fixed Cost + Target price =  $80,000 + $40,000 = $120,000

Contribution % = Sales % - Variable cost % = 100 % - 80 % = 20 %

Total reqired sales per year =  Total Contribution / Contribution %

= $120,000 / 20 % = $600,000

Note 2 : Compuation of sales per customer per week

= Average Sale per customer visit * Average customer visits per week  = $25.50

Note 3 : Number of customer to visit  7-Eleven per year

= Total reqired sales per year / Sales per customer per week

= $600,000 /  $25.50 = 23,530 customer

Answer :

Required City population

= Number of customer to visit  7-Eleven per year / Customers as portion of city population

=  23,530 customer / 5% = 470,600