Question

Victor’s is open from 11:30am until 9:00pm 5 days per week, which works out to 250 days per year considering holiday closures. Victor recently invested in Toast, a mobile POS system for taking orders and issuing checks. The new system, which cost $35,000, provides key information on sales and costs, while also facilitating the job of employees who take orders and issue the checks. Using this new system, Victor obtained the following information on his results for 2019:

• Sales from Food:                                $430,000 (excludes tips)
• Sales from Drinks:                              $240,000 (excludes tips)
• Number of customer bills/checks          18,000 (includes drinks and food)
• Direct Costs of Food:                         $200,000
• Direct Costs of Drinks:                        $ 80,000
• Wages for hourly Workers:               $140,000 (includes all employment costs)
• Salary of Manager:                              $ 60,000 (includes all employment costs)
• Other operating Expenses                 $ 80,000 (rent, insurance, supplies, real estate taxes, etc.)

1. The following for Victor’s Bar and Grill:
   1. Average bill for food: $23.89
   2. Average bill for drinks: $13.33
   3. Average CM for food: $12.78 (CM = contribution margin)
   4. Average CM for drinks: $8.89
   5. CM % on food: 53.49%
   6. CM % on drinks: 66.67%
   7. Total CM %: 58.21%
   8. Total Revenue: $670,000
   1. Total CM: $390,000
   10. Operating Expenses: $280,000
   11. Operating income: $110,000
   50. Average hourly labor cost per bill: $7.78

2. In 2020, Victor’s expects the following changes to his business:
   1. Wages for workers will increase by 15% because of a new minimum wage.
   2. He will increase the salary of the manager by 5%.
   3. All other costs, including material costs per meal, are not expected to change.
   4. He plans to increase his prices of food by 3% and to increase his drink prices by 5%.
   5. The number of customers (meals) is expected to increase by 2%

• Using this new information, please forecast the following for 2020:
  1. Average bill for food: ______
  2. Average bill for drinks: ________
  3. Average CM for food: _______
  4. Average CM for drinks: ______
  5. Average total CM per bill: ________
  6. Total CM %: _______
  7. Total Revenue: _______
  8. Total CM: ________
  1. Operating income: ________
  10. Average hourly labor cost per bill: _______

3. Victor is considering implementing early bird specials between 3:00pm and 5:00pm, which is normally the slowest time for business. He plans to offer specials that would lower the prices of food by 30% and the prices of drinks by 25%. This is expected to triple his business without causing any increase in other operating expenses (other than the cost of food of course). Without the early bird pricing, he had projected a total of only 1,100 customer bills during these 2 hours for all of 2020. The early bird specials are expected to triple the number of customers. Please calculate the following results for the new early bird pricing for the early bird hours only:

1. Average bill for food: ______
2. Average bill for drinks: ________
3. Average CM for food: _______
4. Average CM for drinks: ______
5. Average total CM per bill: ________
6. Total CM %: _______
7. Total number of bills: ________
8. Total CM: _________
1. Total number of bills with no early bird special: _______
10. Total CM with no early bird specials: ________

Answer 1

STATEMENT SHOWING ALL CHANGES

particulars	amount($)
revenue:
sales from food	$                        4,51,758	number of customers	18,360
sales from drinks	$                        2,52,000	average bill for food	$                         25
total revenue	$                        7,03,758	average bill for drinks	$                         14
		average CM for food	$                         13
costs:		average CM for drink	$                           9
direct cost of food	$                        2,04,000
direct cost of drinks	$                           80,000
wages for workers	$                        1,61,000
salary of managers	$                           63,000
other operating expenses	$                           80,000
total operating expenses	$304000

Sales from food = $430000 x 1.02 x 1.03

sales from drinks = $240000 x 1.05

1. Average bill for food = $25
2. Average bill for drinks = $14
3. Average CM for food = $13
4. Average CM for drinks = $9
5. Average total CM per bill = $22
6. Total CM % = 57.39%
7. Total Revenue = $703758
8. Total CM = $403920
1. Operating income = $399758
10. Average hourly labor cost per bill = $8.76

FOR EARLY BIRD CUSTOMERS

particulars	amount($)
revenue:
sales from food	55183	number of customers	3,300
sales from drinks	33000	average bill for food	17
total revenue	88183	average bill for drinks	10
		average CM for food	6
costs:		average CM for drink	6
direct cost of food	36667
direct cost of drinks	14667
wages for workers	25667
salary of managers	11000

1. Average bill for food = $17
2. Average bill for drinks = $10
3. Average CM for food = $6
4. Average CM for drinks = $6
5. Average total CM per bill = $12
6. Total CM % = 44.9%
7. Total number of bills = 3300
8. Total CM = $39600
1. Total number of bills with no early bird special =1100
10. Total CM with no early bird special =$23833

Calculation of CM without early bird discount

particulars	amount($)
revenue:
sales from food	26278
sales from drinks	14667
total revenue	40944
costs:
direct cost of food	12222
direct cost of drinks	4889
total	17111
contribution	23833