Two entrepreneur want to open up a restaraunt. They have found the perfect build
ID: 2484418 • Letter: T
Question
Two entrepreneur want to open up a restaraunt. They have found the perfect building for their business. Bobby will supervise, while Tommy quits his current $50,000 job to be the cook for the business. Before they decide to fully commit to this business venture, they would like to crunch some numbers. Listed below is the information needed for the problems.
Some important Data for you to know:
Projected average revenue, includes food/drinks/desserts............. $45 per meal
Average cost of food ..................................................................$15 per meal
All of the employees salaries....................................................... $5,100 per month
Rent (building and various equipment)...........................................$4,000 per month
Cleaning (both linen and premises) ..............................................$800 per month
Replacement of dishes, cutlery, glasses, etc ...............................$300 per month
Utilities, advertising, and telephone ............................................$2,300 per month
Please answer the following questions:
Identify for them the annual number of meals needed to breakeven and the sales revenue to breakeven.
Identify for them how many meals they must serve to make a profit of $ 75,600 in year One.
Identify 3 major factors they should consider before they fully commit to the idea of opening up the business.
Explanation / Answer
Contribution per meal = Average revenue - Average cost of food per meal = $45 - $15 = $30
Contribution margin ratio
= contribution per meal / selling price per meal
= $30/$45 = 2/3
Annual number of meals required to break even
= Fixed cost / contribution per meal
= $150000 / $30 per meal
= 5000 meals
Sales revenue required to break even
= $150000 / contribution margin ratio
= $150000 / (2/3)
= $100000
Number of meals required to serve to earn a profit of $75600
= (Fixed costs + $75600) / contribution per meal
= ($150000 + $75600) / $30 per meal
= 7520 meals
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