Question: Danielle is contemplating whether she should accept an offer to run a SUBWAY franchise store. The annual fixed costs for various items are listed as shown. Her market research indicates that she can sell about 15,000 subs every month. Further, the average price at which she can sell a sub is estimated to be $4.00. She needs to buy rolls, vegetables and other raw materials that adds up to 50% of the price. SUBWAY requires her to share 10% of her revenues in addition to the annual franchise fee of $15,000 indicated on the list. She feels that the project is not worthwhile if she cannot make 15% net profit.
a. What is the contribution margin per sub?
b. How many subs does she need to sell to breakeven?
b. What will be her net profit?
c. Do you recommend that she accept this franchise offer?
Add rows as necessary in column A and column B and indicate clearly your calculations.
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SUBWAY Franchise
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Annual Estimated operating costs
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USD
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Lease at the strip mall for 100 sqft
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120.000
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Annual franchise fee
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15.000
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Equipment
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30.000
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Furniture and fixtures
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35.000
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Heat and Air Conditioning
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12.000
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Salaries
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8.000
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Working capital
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5.000
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