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Homework answers / question archive / Sub Stop, a small sandwich store, is located on a busy corner near many other businesses
Sub Stop, a small sandwich store, is located on a busy corner near many other businesses. The shop's busiest time is during the mid-day period. Rent for the location is $1100 per month, and wages amount to $2100 per month. Variable costs consist of supplies and sandwich ingredients that cost $2.03 per sub sandwich. The subs are to be sold at a price of $5.49 each. Answer each of the following independent questions.
(a) How many sandwiches must the shop sell to break even? (b) If the shop increases variable costs by $0.25 per sandwich, how many sandwiches must it sell to break even? (c) ft the rent increases by 11%, what would the profit be if the shop sold 1554 units? (d) If the sandwich price was reduced by $0.25, how many sandwiches must the shop sell to make $1168 profit?
a)
We are given
Rent = $1,100 per month
Wages = $2,100 per month
So,
Total Fixed Costs = 1,100+2,100 = $3,200 per month
Variable costs = $2.03 per sandwich
Selling price = $5.49 per sandwich
Let number of sandwiches to break even = x
For break even:
Total revenue - Total variable costs = Total fixed costs
5.49x - 2.03x = 3200
3.46x= 3200
x= 3200/3.46 = 924.86 or 925 sandwiches per month
So, number of sandwiches sold to break even are 925.
b) New variable cost per sandwich = 2.03+0.25 = $2.28
5.49x- 2.28x = 3200
3.21x= 3200
x= 3200/3.21 = 996.88 or 997 sandwiches per month to break even
c)
New rent = 1.11*1100 =$1,221
Therefore new fixed costs= $1,221+$2,100 = $3,321
Margin per sandwich = 5.49- 2.03 = $3.46
Therefore margin for 1554 sandwiches = 1554*3.46 =$5376.84
Therefore net profit = $5376.84 - $3,321 = $2,055.84
d)
New sandwich price= 5.49-0.25 = $5.24
Therefore margin per sandwich= 5.24-2.03 = $3.21
Let us assume it has to sell x sandwiches to make a profit of $1168
Total margin = 3.21x
Profit = 3.21x - 3200 = 1168
3.21x = $4368
x =4368/3.21 = 1,360.75 or 1361 sandwiches
