Question 3.2 Vine Dining scats 80 and operates from 6pm until late from Tuesday
ID: 2544322 • Letter: Q
Question
Question 3.2 Vine Dining scats 80 and operates from 6pm until late from Tuesday to Sunday except in late February and early March where the restaurant is closed to allow all staff including Sophie and her family an annual holiday for a total of 318 s. Generally, two sittings (that is, 160 people) can be served each day. The average spend per customer is $65 and variable costs per customer is $16.50. Fixed salaries and other overheads is $847.750 per annum. Days open No of Cust's Variable Cost per customer 4,480 2,502 3,310 4,007 3,986 3,722 3,131 3,575 4,250 3,698 4,104 4,480 $17 $17 $17 February March April May June 27 28 27 August September October November December $15 $15 $15 $19 $19 $17 $17 28 27 28 a) Based on annual averages, calculate I. Break-even point in units and dollars I. Break-even point in units and dollars where a target profit of $1,100,000 is identified -assume II. Break-even point in units and dollars where the target profit used in b is after tax. I. Break-even point in units and dollars an even split of revenue per month b) Based on monthly information, calculate Il. Break-even point in units and dollars where a target profit of $1,100,000 is identified II. Break-even point in units and dollars where the target profit used in b is after tax.Explanation / Answer
A )
The following information will be used for calculation break even point on basis of annual averages
· The per unit revenue of customer is $65
· The per unit variable cost of customer is $16.50
· The total fixed cost is $ 847,750
i)
first we calculate the contribution per unit . the formula is given below
Contribution per unit= per unit revenue from customer – per unit variable cost of customer
Contribution per unit= $65 -$16.50
Contribution per unit= $ 48.50
Calculation of break even point in units. The formula given below
BEP units = fixed cost / contribution per unit
= $847,750 / $48.50
=17479.38 or 17480 units round off to whole number
The break even point in units is 17480 units
Calculation of break even points in dollars . the formula given below
Break even in dollars = break even in units x per unit revenue from customer
Break even in dollars = 17480 x $ 65
Break even in dollars= $ 1136200
The break even in dollars is $1,136,200
II )
If target income of $1,100,000 is required then
Calculation of break even point in units. The formula given below
BEP units = (fixed cost + target income) / contribution per unit
= ($847,750 + $1,100,000) / $48.50
= $1,947,750 /$48.50
= 40159.79 or 40160 units round off to whole number
The break even point in units is 40160 units
Calculation of break even points in dollars . the formula given below
Break even in dollars = break even in units x per unit revenue from customer
Break even in dollars = 40160 x $ 65
Break even in dollars= $ 2,610,400
The break even in dollars is $ 2,610,400
III )
To calculate Break even point
· if target income is after tax is $1,100,000
· the tax is assumed 40% as no tax rate is given in problem ( you can take any tax rate the answer will change as per tax rate)
The formula to calculate BEP in units is Target profit after tax is given below
BEP in units = [ fixed cost +( target profit after tax /(1-tax rate)]/ contribution per unit
=[ $847,750 +( $1,100,000 /(1-0.40)]/ $48.50
=[ $847,750 +( $1,100,000 /(0.60)]/ $48.50
=$847,750 +1833333 / $48.50
=$847,750 +1833333 / $48.50
= $ 2,681,083/$48.50
=55280.07 or 55280 units
The break even point in units is 55280 units
Calculation of break even points in dollars . the formula given below
Break even in dollars = break even in units x per unit revenue from customer
Break even in dollars = 55280 x $ 65
Break even in dollars= $ 3,593,200
The break even in dollars is $ 3,593,200
B
i)
In this case the Break even point in units and dollars have to be calculated as per monthly information given
· The total fixed cost is $ 847,750
· the above data is tabulated in which a column of total revenue, total variable cost , contribution , cumulative contribution and cumulative customers per month is addition to data given in the assignment given below
month
no of customers
average spend by customer ($)
total revenue($)
variable cost per customer($)
total variable cost($)
total contribution($)
cumulative contribution($)
cumulative no of customers
A
B
C
D=BxC
E
F=BxE
G=D-F
H
I
jan
4480
65
291200
17
76160
215040
215040
4480
feb
2502
65
162630
17
42534
120096
335136
6982
mar
3310
65
215150
17
56270
158880
494016
10292
apr
4007
65
260455
15
60105
200350
694366
14299
may
3986
65
259090
15
59790
199300
893666
18285
jun
3722
65
241930
15
55830
186100
1079766
22007
jul
3131
65
203515
15
46965
156550
1236316
25138
aug
3575
65
232375
15
53625
178750
1415066
28713
sep
4250
65
276250
19
80750
195500
1610566
32963
oct
3698
65
240370
19
70262
170108
1780674
36661
nov
4104
65
266760
17
69768
196992
1977666
40765
dec
4480
65
291200
17
76160
215040
2192706
45245
45245
2940925
748219
2192706
To calculate the BEP in units if the fixed cost is given $847,750 . in the table above the cumulative contribution for the month of May is $ 893,666 and in april it is $694,366 . therefore cumulative break even point in units will be in the month of may
Contribution for the month of may needed for BEP = fixed cost – Cumulative contribution in april
= $847,750 - $694,366
=$153,384
Contribution per unit in may = $65 - $15 = $50
BEP in units for may = contribution for may / contribution per unit in may
= $153,384 / $50
=3067.68 or 3068 units
BEP in units = cumulative units of customers till april + BEP in units in May
= 14299 +3068
= 17367 units
The break even point in units is 17367 units
Calculation of break even points in dollars . the formula given below
Break even in dollars = break even in units x per unit revenue from customer
Break even in dollars = 17367 x $ 65
Break even in dollars= $ 1,128,855
The break even in dollars is $ 1,128,855
II )
If target income is $1,100,000 . then the total cost will be
= target income + fixed cost
= $1,100,000 + $847,750
=$1,947,750
To calculate the BEP in units if the total cost is given $1,947,750 . in the table above the cumulative contribution for the month of Nov is $ 1977666 and in oct it is $1780674. therefore cumulative break even point in units will be in the month of nov
Contribution for the month of Nov needed for BEP = Total cost – Cumulative contribution in oct
= $1,947,750- $1780674
=$167076
Contribution per unit in may = $65 - $17 = $48
BEP in units for may = contribution for may / contribution per unit in may
= $167076/ $48
=3480.75 or 3481 units
BEP in units = cumulative units of customers till OCT+ BEP in units in NOV
= 36661 +3481
= 40142 units
The break even point in units is 40142 units
Calculation of break even points in dollars . the formula given below
Break even in dollars = break even in units x per unit revenue from customer
Break even in dollars = 40142 x $ 65
Break even in dollars= $ 2,609,230
The break even in dollars is $ 2,609,230
month
no of customers
average spend by customer ($)
total revenue($)
variable cost per customer($)
total variable cost($)
total contribution($)
cumulative contribution($)
cumulative no of customers
A
B
C
D=BxC
E
F=BxE
G=D-F
H
I
jan
4480
65
291200
17
76160
215040
215040
4480
feb
2502
65
162630
17
42534
120096
335136
6982
mar
3310
65
215150
17
56270
158880
494016
10292
apr
4007
65
260455
15
60105
200350
694366
14299
may
3986
65
259090
15
59790
199300
893666
18285
jun
3722
65
241930
15
55830
186100
1079766
22007
jul
3131
65
203515
15
46965
156550
1236316
25138
aug
3575
65
232375
15
53625
178750
1415066
28713
sep
4250
65
276250
19
80750
195500
1610566
32963
oct
3698
65
240370
19
70262
170108
1780674
36661
nov
4104
65
266760
17
69768
196992
1977666
40765
dec
4480
65
291200
17
76160
215040
2192706
45245
45245
2940925
748219
2192706
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