Question

Problem 4: McDowell's Restaurant Jack McDowell is the sole owner of McDowell's, a fast food restaurant modeled after a popular fast food chain. He is reviewing his financial results and has the following information: • Sandwiches Served: 10,000 Total Food Sales: $85,000 (all sandwiches are the same price) Total Drink Sales: $15,000 (all drinks are the same price) Cost of Food: $42,500 (Jack is very careful so that all food purchased is sold, there is no inventory) Cost of Drink: $3,000 (there is no excess of inventory of drinks) Commissions Paid: $10,000 (Employees share in a bonus pool based on sales) Monthly Rent & Occupancy Costs: $20,000 Monthly Salaries: $15,000 Monthly Advertising: $12,500 They are thinking about lowering the price for sandwiches (drinks would remain the same) to $7.50 per sandwich. They believe that units sold would increase to 17,500. He is not pleased with the results and requests the following information from you: Total Revenue Per Unit Total Variable Cost Per Unit Total Fixed Costs Contribution Margin Per Unit Current Net Income Current Break-Even in Units Current Units for Profit of $10,000 Break-Even in Units With Lower Selling Price | New Net Income With New Price and Units Sold

Answer 1

Total Revenue per unit :- Particular Amount $ Foods sales (85000/10000) 8.50 Drink sales (15000/10000) 1.50 Revenue per unit 10.00 Total Variable cost per unit :- Amount $ Particular Food cost (42500/10000) 4.25 Drink sales (3000/10000) 0.30 Sales commission (10000/10000) 1.00 Variable cost per unit 5.55 Total Fixed cost :- Particular Amount $ Rent and Occupancy cost 20,000 Salaries 15,000 Advertising 12,500 Total fixed cost 47,500 Contribution margin per unit :- Particular Amount $ Revenue per unit 10.00 Less: Variable cost per unit 5.55 Contribution margin per unit 4.45 Current Net Income :- Particular Amount $ Sales Revenue (85000+15000) 100,000 Less: Variable cost (42500+3000+10000) 55,500 Contribution margin 44,500 Less: Fixed cost 47,500 Net Income (3,000) Current Breakeven units is = (Fixed cost/Contribution margin per unit) Current Breakeven units is = (47500/4.45) Current Breakeven units is = 10,674