SUBWAY fixed cost

Document Sample
SUBWAY fixed cost Powered By Docstoc
					SIMPLE CONTRIBUTION MARGIN ON ONE UNIT SALE
                        A CAN OF SODA
      Selling price for one can of soda                              $1.00


      Cost of Goods Sold      (direct cost of the product/service)

      Average cost of a can of soda                          $ .50
      Average shipping/distribution cost per unit            $ .06
               TOTAL COGS                                            $ .56

      GROSS PROFIT PER CAN                                           $ .44

      Less: Other variable costs                             $ .00

      NET CONTRIBUTION MARGIN          (AFTER ALL DIRECT COSTS)      $ .44
BREAK-EVEN POINT FOR SODA VENDING BUSINESS
                    SCHOOL OF BUSINESS AGREEMENT

   Agreement with School of Business to locate a soda vending machine in Chan Shun
   Hall. School of Business wants 25% of the gross profit per can in exchange for
   giving you the exclusive vending rights to their building.

   QUESTION: What is your break-even point if the initial contribution margin
   is $.44/can?

   YOUR FIXED COSTS:
   Rent on Vending Machine    $ 50/mo
   TOTAL MONTHLY FIXED COSTS = $ 50/mo

   GROSS PROFIT PER SODA =                                    $ .44
   LESS: OTHER VARIABLE COSTS
   (25% of gross profit per can paid to School of Business)   $ - .11
   NET CONTRIBUTION MARGIN                                    $ .33

   BREAK-EVEN POINT = Fixed Costs/Net Contribution Margin
                    = $ 50/.33 = 151.5 cans of soda per month
 SODA VENDING BUSINESS – 200 cans/mo
              SCHOOL OF BUSINESS AGREEMENT

If you expect to sell about 200 cans of soda per month, what profits do you expect?

Cost of Goods Sold        (direct cost of the product/service)

Average cost of a can of soda                     $ .50
Average shipping/distribution cost per unit       $ .06
Royalty paid to School of Business per can        $ .11
         TOTAL COGS                                         $ .67

GROSS PROFIT/CONTRIBUTION MARGIN per soda = $ .33

BREAK-EVEN POINT = $ 50/.33 = 151.5 cans of soda per month

If 200 sodas sold per month…
          REVENUES (200 x $1)                     $ 200
          Less: COGS (200 x $.67)       - 134
          Gross Profits                           $ 66
          Less: Fixed Costs             - 50
          NET PROFITS                             $ 16/mo ($192/yr)
PROFITS FOR SODA VENDING BUSINESS
            Assumes sales of 300 and 400 cans/mo

If 300 sodas sold per month…
        REVENUES (300 x $1)                 $ 300
        Less: COGS (300 x $.67)    - 201
        Gross Profits                       $ 99
        Less: Fixed Costs          - 50
        NET PROFITS                         $ 49/mo ($588/yr)



If 400 sodas sold per month…
        REVENUES (400 x $1)                 $ 400
        Less: COGS (400 x $.67)    - 268
        Gross Profits                       $ 132
        Less: Fixed Costs          - 50
        NET PROFITS                         $ 82/mo ($984/yr)
        THE ECONOMICS OF ONE UNIT SALE

Selling price for one foot-long veggie-turkey sandwich                           $ 5.00
Cost of Goods Sold          Price     Unit       Used       Cost
VeggieTurkey (1/4 lb)       $3.20     per lb     ¼ lb       $ .80
Cheese (5 slices)           $2.88     24 pack    5 slices   $ .60
Tomato (1/4 lb)             $1.60     per lb     ¼ lb       $ .40
Pickles (2)                 $ .12     each       2 each     $ .24
Lettuce (2 oz)              $1.28     per lb     2 oz       $ .16
Bread (1 long roll)         $3.96     dozen      1 roll     $ .33
Miracle Whip (1 oz)         $3.84     32oz jar   1 oz       $ .12
Mustard (1/2 oz)            $2.40     20oz jar   ½ oz       $ .06
Salt (2 shakes)             $1.00     per lb     1/100 lb   $ .01
Napkins (2)                 $3.00     100 pack   2 each     $ .06
Paper wrapping (2 foot)     $ .10     per foot   2 feet     $ .20
Plastic bag (1)             $7.00     100 roll   1 bag      $ .07     $ 3.05

CONTRIBUTION MARGIN                                                              $1.95

**Direct Labor (~3 min)     $8.00     per hr     1/20 hr    $ .40**
COSTS INCLUDING DIRECT LABOR                                          $ 3.45**
** (do not use in your CM calculations)
BREAK-EVEN FOR YOUR SANDWICH SHOP

 OVERHEAD EXPENSES

 Rent                                $1,000/ mo
 Electricity                         $100/ mo
 Phone                               $ 30/ mo
 Advertising                         $ 50/ mo
 Misc Supplies                       $ 50/ mo
 Monthly Labor                       312 hrs/mo x ($8.00/hr + 25% benefits)   = $3120/ mo
  (Open 26 days a month, 12 hours per day)

 TOTAL MONTHLY FIXED COSTS = $ 4,350/ mo

 CONTIBUTION MARGIN PER SANDWICH = $1.95

 BREAK-EVEN POINT = 4,350/1.95 = 2,230.77 sandwiches a month, or
 about 85.8 sandwiches per day! (That’s about 7.15 sandwiches per
 hour of operation!)
REVISED BREAK-EVEN FOR YOUR SANDWICH SHOP
   a) … if turkey price is $4/lb and tomatoes = $2/lb
        OVERHEAD EXPENSES

        Rent                                $1,000/ mo
        Electricity                         $100/ mo
        Phone                               $ 30/ mo
        Advertising                         $ 50/ mo
        Misc Supplies                       $ 50/ mo
        Monthly Labor                       312 hrs/mo x ($8.00/hr + 25% benefits)   = $3120/ mo
         (Open 26 days a month, 12 hours per day)

        TOTAL MONTHLY FIXED COSTS = $ 4,350/ mo
        Price increases add $.30 cost per sandwich… thus…
        CONTIBUTION MARGIN PER SANDWICH = $1.65

        BREAK-EVEN POINT = 4,350/1.65 = 2,636.36 sandwiches a month, or
        about 101.4 sandwiches per day! (That’s about 8.45 sandwiches per
        hour of operation!)
REVISED BREAK-EVEN FOR YOUR SANDWICH SHOP
   b) … if worker is paid $9.00/hr instead of $8.00/hr
        OVERHEAD EXPENSES

        Rent                                $1,000/ mo
        Electricity                         $100/ mo
        Phone                               $ 30/ mo
        Advertising                         $ 50/ mo
        Misc Supplies                       $ 50/ mo
        Monthly Labor***                    312 hrs/mo x ($9.00/hr + 25% benefits)   = $3510/ mo
         (Open 26 days a month, 12 hours per day)

        TOTAL MONTHLY FIXED COSTS = $ 4,740/ mo

        CONTIBUTION MARGIN PER SANDWICH = $1.95

        BREAK-EVEN POINT = 4,740/1.95 = 2,430.76 sandwiches a month, or
        about 93.49 sandwiches per day! (That’s about 7.79 sandwiches per
        hour of operation!)
 REVISED BREAK-EVEN FOR YOUR SANDWICH SHOP
c) … if worker is paid $9.00/hr and turkey/tomato prices rise
         OVERHEAD EXPENSES

         Rent                                $1,000/ mo
         Electricity                         $100/ mo
         Phone                               $ 30/ mo
         Advertising                         $ 50/ mo
         Misc Supplies                       $ 50/ mo
         Monthly Labor***                    312 hrs/mo x ($9.00/hr + 25% benefits)   = $3510/ mo
          (Open 26 days a month, 12 hours per day)

         TOTAL MONTHLY FIXED COSTS = $ 4,740/ mo
         Price increases add $.30 cost per sandwich… thus…
         CONTIBUTION MARGIN PER SANDWICH = $1.65

         BREAK-EVEN POINT = 4,740/1.65 = 2,872.73 sandwiches a month, or
         about 110.49 sandwiches per day! (That’s about 9.21 sandwiches per
         hour of operation!)
PROFIT EXPECTATIONS FOR YOUR SANDWICH SHOP
     d) Cheap turkey/tomatoes and $8/hr wages
      OVERHEAD EXPENSES

      Rent                                $1,000/ mo
      Electricity                         $100/ mo
      Phone                               $ 30/ mo
      Advertising                         $ 50/ mo
      Misc Supplies                       $ 50/ mo
      Monthly Labor                       312 hrs/mo x ($8.00/hr + 25% benefits)   = $3120/ mo
       (Open 26 days a month, 12 hours per day)

      TOTAL MONTHLY FIXED COSTS = $ 4,350/mo
      ADD IN EXPECTED PROFITS OF $2,000/mo

      CONTIBUTION MARGIN PER SANDWICH = $1.95

      To achieve your profit objective, you must sell about 3,256.41
      sandwiches a month ($6,350/1.95), or about 125.25 sandwiches per day!
      (That’s about 10.5 sandwiches per hour of operation!)
PROFIT EXPECTATIONS FOR YOUR SANDWICH SHOP
   e) Expensive turkey/tomatoes and $9/hr wages
      OVERHEAD EXPENSES

      Rent                                $1,000/ mo
      Electricity                         $100/ mo
      Phone                               $ 30/ mo
      Advertising                         $ 50/ mo
      Misc Supplies                       $ 50/ mo
      Monthly Labor                       312 hrs/mo x ($9.00/hr + 25% benefits)   = $3510/ mo
       (Open 26 days a month, 12 hours per day)

      TOTAL MONTHLY FIXED COSTS = $ 4,740/mo
      ADD IN EXPECTED PROFITS OF $2,000/mo
      Price increases add $.30 cost per sandwich… thus…
      CONTIBUTION MARGIN PER SANDWICH = $1.65

      To achieve your profit objective, you must sell about 4,084.85
      sandwiches a month ($6,740/1.65), or about 157.11 sandwiches per day!
      (That’s about 13.1 sandwiches per hour of operation!)

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:32
posted:10/11/2011
language:English
pages:11