Pply Your Knowledge ecision Cases Determine feasibility of business plan (Leanin

Question

Pply Your Knowledge ecision Cases Determine feasibility of business plan (Leaning Thailand. Nui, rian and Nui Soon live in Macon, Georgia. Two years ago, they visited Thai food. Macon does not have a Thai restaurant, and the Soons are contemplating opening one. Nui would supervise the cooking, and Brian would leave his current job to be the maitre d'. The restaurant would serve dinner Tuesday through Saturday. Ichef, was impressed with the cooking methods and the spices used in the Brian has noticed a restaurant for lease. The restaurant has seven tables, each of which can seat four. Tables can be moved together for a large party. Nui is plan- ning two seatings per evening, and the restaurant will be open 50 weeks per year The Soons have drawn up the following estimates: S 40 per meal 12 per meal eS50,400 per year Average cost of the food Chef's anddishivasher's salaries. Rent foremies cquipmendi Ceaning linen and premisc) Replacement of dishes, cutlery, glasses Utilities, advertising, telephone.. S50,400peryo 4000 per month 800 per month $300 per month S 1,900 per mont Requirements Compute annual breakeven number of meals and sales revenue for the restaurant Also, compute the number of meals and the amount of sales revenue needed to earn operating income of $75,600 for the year. How many meals must the Soons serve each night to earn their target income of $75,600? Should the couple open the restaurant? Support your answer

Explanation / Answer

Contribution margin per meal = $ 40 - $ 12 = $ 28.

Total fixed cost = $ 50,400 + $ 7,000 x 12 = $ 134,400.

Annual break-even number of meals = Total Fixed / Contribution Margin per meal = $ 134,400 / $ 28 = 4,800 meals.

Break-even sales revenue = $ 40 x 4,800 = $ 192,000.

Sales in meals required to earn a target income of $ 75,600 = $ ( 134,400 + 75,600) / $ 28 = 7,500 meals.

Sales revenue needed to earn $ 75,600 = 7,500 meals x $ 40 = $ 300,000.

Number of meals to be served each evening to earn $ 75,600 = 7,500 / ( 50 x 7) = 21.43 meals.

The maximum number of meals that can be served per evening = 7 tables x 4 seats x 2 seatings = 56 meals.

Since the number of meals to be served to earn the target income of $ 75,600 is well within the maximum capacity ( less than 50% capacity utilization), the couple should open the restaurant.

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