Please provide guidance for question 5 from Part A below. Q: FreshRoll needs an

Question

Please provide guidance for question 5 from Part A below.

Q: FreshRoll needs an after tax profit of $20,000 in January. How many guests do they need to serve?

FreshRoll Catering provides a "Deluxe Roller service that has proven to be popular and attracts many repeat customers. FreshRoll provides high quality ingredients and the specially trained staff help guests roll sushi while enjoying cocktails and other prepared appetizers. The business is seasonal, with a heavy schedule during the summer months and holidays and a lighter schedule at other times The usual price per guest for the Deluxe Roller is $54. FreshRoll has estimated the cost per guest for the Deluxe Roller service as follows Direct costs $13.00 $ 6.00 18.00 Food Drink Labor (1 Overhead costs 1.67 Miscellaneous (1 hr. x 7.157.15 $45.82 Rent (1 hr. x$1.67) Total cost per guest Labor includes food preparation and service. Here is the detail of how the one-hour for labor in the table above was computed: FreshRoll provides 1 server/tutor for every 4 guests so that is.75 hours per guest for an average 3-hour party. Another 25 hours per guest is needed for the food preparation. These workers are hired only as needed and are paid only for the hours they actually work (The detail is for background only. You can trust my computation of 1-hour per guest.) Management elieves that the direct costs above are reasonably reliable. To compute the overhead costs per hour used above (Rent and Miscellaneous), management used the following summary of costs and labor hours over the last year. (Example: Total miscellaneous OH cost/total labor hours . $7.15 per labor hour.) Miscellaneous overhead includes accounting and legal costs, utilities, supplies and other miscellaneous items. LaborHours Misc OH Costs Rent Costs 2.800 March 3,000 8,000 Apri 200 34,800 2,300 June 8,000 8,600 1,800 7.500 7,000 tober 411,900 Total Per labor hour

Explanation / Answer

For guiding part a question 5 We need the answers to Question 1, 2, and 3 so I am computing answers of the same.

Part A Question 1.    

Cost

Cost Category

Food

Variable

Drink

Variable

Labor

Variable

Rent

Fixed

Mises Expenses

Mixed

Part A Question 2

Computation of Variable and Fixed cost Based On High – Low Method

Highest

Lowest

Difference

Cost

$41,800

$28,000

$13,800

Labor hours

7,500

2,500

5,000

Variable cost Per unit = Difference in Cost /Difference in labor hours

                                   =$13800/5000= $2.76

So Fixed Cost Computed by applying the variable cost value in highest Labor hours = Total cost @at highest labor hours- (Labor hours *Variable cost per hour)

    = $41,800-(7,500*2.76) = $41,800-$20,700 = $27,400=$21,100

So Fixed cost = $21,100

Part A Question3

Contribution Margin per Unit

Selling price

$54

Food

($13)

Drink

($6)

Labor

($18)

Variable overhead

($2.76)

Contribution Margin

$14.24

Part A Question 5

For answering this question we have to convert after-tax income to pre-tax income

Conversion of targeted after-tax income to targeted pre-tax income

Targeted pretax income = Targeted after-tax income /(1- Tax Rate)

Targeted pre Tax income = $20,000/(1-.20)

                                                =$20,000/.80 =$25,000

Targeted Sales In unit = (Total Fixed cost +Targeted pretax income)/Contribution Margin per unit

                                      = ($29,100+$25,000)/$14.24

                                           = 54,000/14.24 = 3799 Guest.

Cost

Cost Category

Food

Variable

Drink

Variable

Labor

Variable

Rent

Fixed

Mises Expenses

Mixed

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