The Home Style Eats has two restaurants that are open 24 hours a day. Fixed cost

Question

The Home Style Eats has two restaurants that are open 24 hours a day. Fixed costs for the two restaurants together total $430,500 per year. Service varies from a cup of coffee to full meab. The average sales check per customer is $8.75 The average cost of food and other variable costs for each customer is 53.50. The income tax rate is 36%. Target net income is $117,600. Requirements 1. Compute the revenues needed to earn the target net income 2. How many customers are needed to break even? To earn net income of $117,600? 3. Compute net income if the number of customers is 170,000 d to compute how many customers are needed to earn net income of $117,600, then compute the number of customers needed Change in net income Contribution margin Fixed costs Original target net income Total revenues Variable costs / Sales check per customer Customers needed to earn $117.600 come if the number of customers is 170.000 to compute the net income when the number of customers is 170,000, then compute the net income +Change in net income Net income

Explanation / Answer

I am answering this question in 3 requirements as per question.

Requirement 1: computation of revenues needed to earn target net income.

in order to find the revenue we have to find the contribution per customer and Profit volume ratio by the following formulas

contribution = sale per customer - variable cost per customer

so contribution = $8.75- $3.50 = $5.25 per customer,

now Profit volume ratio = (contribution/selling price)*100

= (5.25 / 8.75)*100

= 60%

now desired sales revenue =(Total fixed cost +desired profit) / P/ V ratio

= ($430,500+ $183,750)/ 60%

= $1,023,750.

NOTE: In above desired profit is taken before taxes which is calculated as ($117,600) / 64% which amount to $183,750.

Requirement 2: Computation of Break even customers;

Break even customers formula = Fixed cost / contribution per customer

= $430,500/ 5.25

= 82,000 customers.

Requirement 3: calculation of total net income when customers is 170,000;

Total sales for 170,000 customers = 170,000 * $8.75 = $14,87,500.

Total variable cost = 170,000 * $3.50 = $595,000.

now total revenue = (Total sale - fixed cost - total variable cost )- taxes

=($1,487,500 - $430,500 - $595,000) - 36%

=$295,680.

Hope u understand :)

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