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: Lease of store space $500/month Equipment lease $500/month License $240/year Advertising 2.5% gross sales revenue Royalty 8% of gross sales revenue Salaries $2,000/month Utilities $400/month Insurance $1,500/year The average order (sandwich) sells for $4, with food cost of $2.

1.What is the contribution of each order (sandwich) toward covering fixed expenses? Put your answer in the box below and show and label your computations below that.

2.What is the projected monthly breakeven point in units? Round your answer up, to nearest whole unit. Put your answer in the box below and show and label your computations below that.

3.Draw a CVP graph and carefully labe it?

Answer 1

1) Contribution margin for each order

Sale price per order	$4.00
Food cost	$2.00
advertising	$0.10
Royalty	$0.32
Contribution margin per order	$1.58

2) Monthly Breakeven point in units = fixed expenses per month / contribution margin per order

Lease of store space	$500
Equipment lease	$500
License	$20
Salaries	$2,000
Utilities	$400
Insurance	$125
Total fixed expenses	$3,545

Hence, Monthly breakeven points = 3545 / 1.58

= 2244 orders

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