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

sales to earn a profit of $40,000 = (fixed cost + profit ) / PV ratio

here, PV ratio = (1- variable cost ratio)

=> 1 -0.80 =>0.20

=> sales to earn a profit of 40,000 = . (80,000 + 40,000) / 0.20

=>120,000 / 0.20

=>$600,000.

so required sales level is $600,000.

average sale per customer =$17

average customer visits per week = 1.5

average sale per customer =$17*1.5 =>$25.50.

number of customer visits per year = annual sales /average sale per customer =>$600,000/ 25.50

=>23,529 .41.

city population = number of customer visits/ percentage of customers

=>23,529.41 / 5%

=>470,588....(rounded to nearest whole number)