an owner invested $180,000 in a new family-style restaurant, of which $160,000 w
ID: 2775585 • Letter: A
Question
an owner invested $180,000 in a new family-style restaurant, of which $160,000 was immediately used to purchase equipment and $20,000 was retained for working cash. Estimates for the first year of business are as follows:
Menu selling prices to be stablished to give a markup of 150% over cost of food sold
Variable wages, 28% of sales revenue
Fixed wages, $51,600
Other variable costs, 7% of sales revenue
Rent, $36,000
Insurance, $4,800
Depreciation on equipment, 20%
Return on investment desired, 12%
Income tax rate, 30%
The restaurant has 60 seats and is open 5 days a week for lunch and dinner only. Lunch sales revenue is expected to be 40% of total voulume with 2 seat turnovers. Dinner revenue will be 60% of total volume, with 1.25 turnovers. Calculate average check per meal period that will cover all costs, including desired return on investment.
Explanation / Answer
Answer: Calculate the desired rate of return on the money the owners intend to invest into the hotel or restaurant.
=$180000*12%
=$21600
Calculate the Pre-tax profit using the following formula:
Pre-tax Profit=Desired rate of return/(1-Tax rate)
tax rate=30%
=$21600/(1-0.30)
=$30857.14
Calculate the fixed charges & undistributed Expenses.
Insurance expenses=$4800
Rent expense=$36000
Fixed Wages=$51600
Depreciation expense=$160000*0.20=$32000
Total Fixed charges=$124400
Estimate the income/(loss) earned from all other source, not including the main revenue generating source of business.
Since there are no other source of revenue.so, there is no income from other sources.
Calculate the required hotel/restaurant income.
$30857.14+$124400=$155257.14
Calculate the required hotel/Restaurant revenue, including all other cost associated with the operation.
Variable cost:
Fixed cost=40%
Wage cost=28%
other cost=7%
Variable=75%
Fixed cost=25%
=$155257.14/0.25=$621028.56
Calculate average check per meal period that will cover all costs, including desired return on investment.
Lunch sale=40% of total sale
Dinner sale=60% of total sale
So, the average check per meal period that will cover all costs, including desired return on investment is:
Lunch =$7.96
Dinner=$19.11
Restaurant Lunch Dinner Open 260 days 248411.42/(260*60*2) 372617.14/(260*60*1.25) has 60 seats $248411.42/31200 t/o 2/launch period $7.96 $19.11 1.25 / dinner periodRelated Questions
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