Question

6. The Glass House Restaurant is open 24 hours per day serving breakfast, lunch and dinner.
Fixed Costs are $42,000 per month. Variable Costs are $11.50 per meal.
The average total bill is $15 per customer. Ignore taxes and tips.
Required:
Compute the number of meals that must be served if Glass House Restaurant
wishes to earn a profit of $9,000
Compute the Break Even point in Units
Compute the Break Even point in Sales Dollars
Assume that fixed costs increase to $50,000. How many additional meals
must be served for the restaurant to earn the same profit?

Answer 1

Ans. 1	Number of meals to be served for target profit   =    (Fixed cost + Target profit) / Contribution margin per meal
	($42,000 + $9,000) / $3.50
	$51,000 / $3.50
	14,571 meals	(rounded)
	*Contribution margin per meal = Average bill per customer - Variable cost per meal
	$15 - $11.50
	$3.50	per meal
Ans. 2	Break even point in unit sales =   Fixed cost / Contribution margin per meal
	$42,000 / $3.50
	12,000 units
Ans. 3	Break even point in dollar sales =   Break even in units * Selling price per unit
	12,000 * $15
	$180,000
Ans. 4	Increase in fixed cost = $50,000 - $42,000 =   $8,000
	Additional meals to be served for target profit   =    Increase in fixed cost / Contribution margin per meal
	$8,000 / $3.50
	2,286 meals	(rounded)