Reference no: EM132771186

Joe Swanson has an opportunity to acquire a franchise from The Yogurt Place, Inc. to dispense frozen yogurt products under the name The Yogurt Place. Swanson has assembled the following information relating to the franchise:

a. A suitable location in a large shopping mall can be rented for $5,120 per month.

b. Remodelling and necessary equipmentwould cost $331,000. The equipment would have a 15-year life and an $15,000 salvage value. Straight-line depreciation would be used.

c. On the basis of similar outlets elsewhere, Swanson estimated that sales would total $395,000 per year. Ingredients would cost 20% of sales.

d. Operating costs would include $95,500 per year for salaries, $4,500 per year for insurance, and $35,100 per year for utilities. In addition, Swanson would have to pay a commission to The Yogurt Place of 12.5% of sales.

Required:

Problem 1. Prepare a contribution format income statement that shows the expected net operating income each year from the franchise outlet.