Question

Rotten Ronnie's is a pub located next to the campus of S.A.I.T. and serves as a gathering place for studious Hotel and Restaurant Management students. Ronnie sells beer on tap and all brands of bottled beer Ronnie is also considering selling hamburgers (a known post secondary staple for starving SAIT students) during selected hours. His reasons are twofold. First burgers would attract daytime customers (a beer and a hamburger are a quick lunch) and, second he has to meet the competition from Local Lou's, The Gateway and other local bars, some of which provide more extensive menus. Ronnie analyzed the costs as follows:

Beer: average contribution margin 0.75

extra beer sold per day 80

Monthly Fixed Expenses:

Wage of part-time cook 2,675

Other 1,450

Variable Expenses Per Hamburger:

Roll 0.19

Meat @ $6.40 per kilogram 0.80 (8 hamburgers per kilogram)

Other 0.36

Ronnie planned a selling price that he believes will lure in many customers. 2.75

Days in the month 30

Hamburgers sold ( part 3 ) 5,140

REQUIRED:

1- What are the monthly and daily break even points in number of hamburgers ?

2- What are the monthly and daily break even points in dollar sales ?

3- At the end of 2 months Ronnie finds he has sold several hamburgers. What is the operating profit per month on hamburgers ? ( see above for hamburgers sold )

4- Ronnie thinks that extra beers can be sold each day because he sells hamburgers. This means he anticipates that because of hamburgers sales he anticipates that his daily beer sales will increase as per above ( extra beer sold per day ). What effect will the additional beer sales have on monthly income ?

5-Refer to requirement 3. How many extras beers would have to be sold per day so that the overall effects of the hamburger sales on monthly operating income would be zero ?

Answer 1

Beer:

Average contribution per margin= $0.75

Extra beer sold per day=80

Monthly Fixed expenses

cook	2675
other	1450
TOTAL	4125

Variable expenses per hamburger

Roll - 0.19

Meat - $6.40 per kg 0.80 ( 8 hamburgers/kg)

Other - 0.36

Variable cost of 1 hamburger

Roll	0.19
Meat	0.80
Other	0.36
Total	1.35

Contribution per unit of hamburger

sales	2.75
(-) variable cost	1.35
contribution p.u.	1.40

hamburgers sold for 2 months =5140

hamburgers sold in 1 month =5140/2 = 2570

(1) breakeven units(monthly) = 4125/1.4 = 2946 hamburgers (approx)

breakeven units(daily) = daily fixed costs/contribution per unit

= 137.5/1.4

=98 hamburgers

(2) monthly breakeven points in $ sales = 2946*2.75

= $8101.5

daily breakeven points in $ sales = 98*2.75

   = 269.5

(3) operating loss = 1.40*2570 - fixed cost

= 3598-4125

=-527

(4) daily extra beers sold = 80

cont p.u of extra beer = 0.75

cont per day on extra beers = 80*.75 = 60

monthly income from extra beers sold = 60*30 =1800

As a result of extra beers sold the operating loss from hamburgers will be setoff leading to a profit

=1800-527

=$1273

(5) operating loss on hamburger per day = 527/30=17.56

number of beers sold to make that loss zero = 17.56/0.75 = 23.42 or 24 beers approx