2. (20 pts) The Eastman Family Restaurant is open 24 hours per day. Fixed costs

Question

2. (20 pts) The Eastman Family Restaurant is open 24 hours per day. Fixed costs are $24,000 per month. Variable costs are estimated at $9.60 per meal. The average revenue is $12 per meal. The restaurant wished to earn a profit before taxes of $6,000 per month. A) Compute the number of meals that must be served to earn a profit before taxes of $6,000 per month. B) Assume that fixed costs increase to $30,000 per month. How many additional meals must be served to earn a profit before taxes of $6,000 per month?

Explanation / Answer

a) Calculate no of meals for desired profit :

No of meal = Fixed cost+desired profit/(Revenue per meal-variable cost per meal)

                  = (24000+6000)/(12-9.60)

No of meal = 12500 meals

FOr earn 6000 per month 12500 meals must served.

B) Calculate additional meal :

Required meal = FIxed cost+desired profit/revenue per meal-variable cost per meal

                     = 30000+6000/(12-9.60)

Required meal = 15000 meal

Additional meal = (15000-12500) = 2500 Meal

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