You have the following p olections about the costs n a fast food restaurant for

Question

You have the following p olections about the costs n a fast food restaurant for the next year. Net income A requ red is 18% on the equity investment of S240 00. The income tax rate is 28%. Depreciation on restaurant furnishings and equipment is 20% of the present book vaue of $112.000. Interest on the bank loan is 12% of the present balance owed of $50,000. Other costs are: Insurance expense Licenses expense Ublities expense 4,500 3,200 $12,800 $1,200 $48,900 35% of total sales revenue 33% of total sales revenue 8% of total sales revenue Management salary expense Cost of Sales (food and beverage expenses) Variable wage expenses Other variable expenses a) Calc??ate the sales revenue requred to cover all the restaurant expenses next year: $ b) Calculate the restaurant's overall average check, given that the restaurant has 132 seats and that is open six days a week for 52 weeks of the year, and that 2.2 seat turnovers per day

Explanation / Answer

Suppose the Sales revenue for the next year is x Sales Revenue x Less: Cost of Sales -0.35x            Variable Wages expenses -0.33x            Other Variable expenses -0.8x Contribution Margin 0.24x Fixed Expenses Insurance Expense $4,500 Licence Expense $3,200 Utilities expense $12,600 Maintenance expense $1,200 Management Salary expense $48,900 Depreciation $22,400 Income before interest and tax 0.24x-$92800 Interest expense $6,000 Income before interest 0.24x-$98800 Tax @ 28% 0.0672x-$27664 Net Income 0.1728x-$71136 Net income required is 18% on equity investment of $240,000, which is $43,200 $43200 = 0.1728x-$71136 0.1728x = $43200+$71136 0.1728x = $114336 x = $114336/0.1728 x = 661667 Sales Revenue $661,667 Less: Cost of Sales $231,583            Variable Wages expenses $218,350            Other Variable expenses $52,933 Contribution Margin $158,800 Fixed Expenses Insurance Expense $4,500 Licence Expense $3,200 Utilities expense $12,600 Maintenance expense $1,200 Management Salary expense $48,900 Depreciation $22,400 Income before interest and tax $66,000 Interest expense $6,000 Income before interest $60,000 Tax @ 28% $16,800 Net Income $43,200 a. Sales revenue required next year $661667 b. Restaurant's overall average check Total Seats 132 Seat Turnover per day 2.2 Total Guest per day (132 x 2.2) 290 Days open in a week 6 Total weeks in the year 52 Total Days open in the year 312 Total guest per year (290 x 312) 90605 Average Check = Sales/Number of guest Average Check = $661667/90605                                 = 7.30

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