The As-You-Like-It Hamburger Shop is considering adding a new location. The investment at each of the four potential sites is the same. The price they can charge for hamburgers is set by the competition in the area. Given the information below, which site is expected to be the most profitable (i.e., net profit)?
$\begin{array}{lcccr}\text { Factor }&\text { Site A }&\text { Site B }&\text { Site C }&\text { Site D }\
\text { Fixed Cost } & \$ 10,000 & \$ 8,000 & \$ 6,000 & \$ 11,000 \
\text { Variable Cost per Unit } & \$ 0.70 & \$ 0.70 & \$ 0.85 & \$ 0.65 \
\text { Price per Unit } & \$ 1.30 & \$ 1.20 & \$ 1.25 & \$ 1.10 \
\text { Forecast Volume (Units) } & 20,000 & 22,000 & 18,000 & 24,000
\end{array}$
A) Site A
B) Site B
C) Site C
D) Site D

Question

Quizplus · Accepted Answer

To determine the most profitable site, calculate the net profit for each site using the formula: Net Profit = (Price per Unit - Variable Cost per Unit) * Forecast Volume - Fixed Cost. For each site:- Site A: (1.30 - 0.70) * 20,000 - 10,000 = $12,000- Site B: (1.20 - 0.70) * 22,000 - 8,000 = $11,000- Site C: (1.25 - 0.85) * 18,000 - 6,000 = $7,200- Site D: (1.10 - 0.65) * 24,000 - 11,000 = $10,800Site B is expected to be the most profitable with a net profit of $11,000.

The As-You-Like-It Hamburger Shop Is Considering Adding a New Location