Question

Customer-Level Planning

7-Eleven operates a number of convenience stores worldwide. Assume that an analysis of operating costs, customer sales, and customer patronage reveals the following:
Fixed costs per store $120,000/year
Variable cost ratio 0.80
Average sale per customer visit $21.00
Average customer visits per week 1.50
Customers as portion of city population 0.05
Determine the city population required for a single 7-Eleven to earn an annual profit of $40,000.
Round annual contribution per customer to two decimal places.
For customers required for desired profit and required population, round up to the nearest whole number (i.e., 325.333 customers = 326)
Annual contribution per customer Answer
Customers required for desired profit Answer
Required population Answe

Answer 1

Annual contribution per customer: $4.20

Customers required for desired profit: 2,381 (rounded up)

Required population: 47,620 (rounded up)

Step-by-step explanation:

To determine the city population required for a single 7-Eleven to earn an annual profit of $40,000, we first calculated the annual contribution per customer. Considering the fixed costs of $120,000 per store, a variable cost ratio of 0.80, and an average sale of $21.00 per customer visit, we found the variable cost per sale to be $16.80.

Thus, the annual contribution per customer amounted to $4.20, taking into account an average of 1.50 customer visits per week.To achieve a desired profit of $40,000, we then divided the target profit by the annual contribution per customer, arriving at the total number of customers required, which rounded up to 2,381. Lastly, to ascertain the necessary city population, we divided the customers required by the proportion of the city population represented by each customer, given as 0.05.

The resulting figure, rounded up to the nearest whole number, was 47,620. Therefore, for a single 7-Eleven store to yield a $40,000 annual profit, it would necessitate serving a city population of approximately 47,620 residents, assuming the given operating parameters and sales dynamics remain constant.