Calculating contribution margin
Glenn Company sells a product for $80 per unit. Variable costs are $60 per unit, and fixed costs are $800 per month. The company expects to sell 560 units in September. Calculate the contribution margin per unit, in total, and as a ratio.
Owner Shan Mu is considering franchising her Noodles by Mu restaurant concept. She believes people will pay $10.00 for a large bowl of noodles. Variable costs are $5.00 per bowl. Mu estimates monthly fixed costs for a franchise at $9,000.
1. Use the contribution margin ratio approach to find a franchise’s breakeven sales in dollars.
2. Mu believes most locations could generate $61,500 in monthly sales. Is franchising a good idea for Mu if franchisees want a minimum monthly operating income of $21,000? Explain your answer.
Identifying variable, fixed, and mixed costs Holly’s Day Care has been in operation for several years. Identify each cost as variable (V), fixed (F), or mixed (M), relative to number of students enrolled.
1. Building rent.
3. Compensation of the office manager, who receives a salary plus a bonus based on number of students enrolled.
4. Afternoon snacks.
5. Lawn service contract at $200 per month.
6. Holly’s salary.
7. Wages of afterschool employees.
8. Drawing paper for students’ artwork.
9. Straight-line depreciation on furniture and playground equipment.
10. Fee paid to security company for monthly service.
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