Question

A restaurant has an average guest check of 10 dollars, cos is 3 per meal, variable labor is 2 dollars per meal, and variable operating expenses is 1 per meal. Fixed costs include depreciation of 10,000 per year and salaries of 3000 per month. Complete the following:

a) What is the selling price, variable cost per unit, contribution margin per unit, contribution margin %, variable cost %, and total annual fixed costs.

b) What is the breakeven # of units for a year and the break even sales dollars for a year

c) If the restaurant wants to make 40,000 in operating income in the year, what is the # units and sales they need to make in total.

d) If the restaurant wants to add another salaried manager for 1000 per month, what is the additional monthly revenue they need to have to cover the salary?

e) If the restaurant wants to add 7000 per year in fixed costs, what is the additional annual sales they need to have to cover the new cost?

f) Prepare an annual income statement at selling 10,000 meals per month – use the original information above.

g) Assume we change the price of meals, so a new average guest check is 12 dollars. The variable costs per meal stay the same and the fixed costs stay the same. All we do is change the price. Now, complete a, b, c, d, e using the new average guest check.

Answer 1

a)

Selling Price per unit = $10 (Average guest check)

Variable cost per unit = $3 ( Variable Operating Cost per unit ($1) + Variable Operating Expense per unit ($2)

Contribution per unit = $7 (Selling price per unit, ($10) - Variable Cost per unit ($3)

Variable Cost % = 30% ( Variable Cost ($3) per unit / (Selling price per unit ($10)

Contribution Margin % = 70% (contribution margin per unit ($7) / Selling Price per unit ($10)

Annual Fixed Cost = $1,56,000 {($10,000+$3,000) x 12)

b)

BEP in units for year = 22,285.71 units or 22,286 units (Total Fixed cost ($1,56,000) / Contribution per unit ($7)

BEP in $ for year = 22,285.71 units x $10 = $2,22,857.10

C)

No of units to make $40,000 profit = 28,000 Units

(Fixed cost + Desired Profit)/ Contribution per unit = ($1,56,000+$40,0000)/$7

Sales value to make $40,000 profit = $2,80,000 (28000 units x $ 10)

d)

Additional monhtly revenue = $1428.57

(Expected Fixed cost / contribution per unit) x Selling price per unit

($1,000 / $7) x $10

e)

Additional monhtly Sale in units & revenue =1000 units & $10,000

(Expected Fixed cost / contribution per unit) x Selling price per unit

($7,000 / $7) x $10

f) Income statement for the year

Item	Per Unit	Amount
Sales in units (10000 *12)	120000
Selling Price (a)	$10	$12,00,000
Less
Variable labour Cost	$2	$2,40,000
Variable Operating Cost	$1	$1,20,000
Total Variable Cost (b)	$3	$3,60,000
Contribution (c ) = (a) - (b)	$7	$8,40,000
Less
Fixed Cost Including depreciation	(10000 x12)	$1,20,000
Salaries	(3000*12)	$36,000
Total Fixed cost (d)		$1,56,000
Net Income (e ) = (c ) - (d)		$6,84,000

g)

a)

Selling Price per unit = $12 (Average guest check)

Variable cost per unit = $3 ( Variable Operating Cost per unit ($1) + Variable Operating Expense per unit ($2)

Contribution per unit = $9 (Selling price per unit, ($10) - Variable Cost per unit ($3)

Variable Cost % = 25% ( Variable Cost ($3) per unit / (Selling price per unit ($10)

Contribution Margin % = 75% (contribution margin per unit ($9) / Selling Price per unit ($10)

Annual Fixed Cost = $1,56,000 {($10,000+$3,000) x 12)

b)

BEP in units for year = 17,333.33 units or 17,333units (Total Fixed cost ($1,56,000) / Contribution per unit ($9)

BEP in $ for year = 17,333.333 units x $12 = $2,08,000

C)

No of units to make $40,000 profit = 21,777.78 Units

(Fixed cost + Desired Profit)/ Contribution per unit = ($1,56,000+$40,0000)/$9

Sales value to make $40,000 profit = $2,61,333.33 (21777.78 units x $ 12)

d)

Additional monhtly Sales in units & revenue = 111.11 Units $1333.33

(Expected Fixed cost / contribution per unit) x Selling price per unit

($1,000 / $9) x $12

e)

Additional monhtly Sale in units & revenue =777.78 units & $9,333.33

(Expected Fixed cost / contribution per unit) x Selling price per unit

($7,000 / $9) x $12