Question

The Grand Inn is a restaurant in Flagstaff, Arizona. It specializes in southwestern style meals in a moderate price range. Paul Weld, the manager of Grand, has determined that during the last 2 years the sales mix and contribution margin ratio of its offerings are as follows. Appetizers Main entrees Desserts Beverages Percent of Contribution Total Sales Margin Ratio 15% 70% 50% 25% 10% 70% 25% 80 % Paul is considering a variety of options to try to improve the profitability of the restaurant. His goal is to generate a target net income of $117,000. The company has fixed costs of $1,362,000 per year. Calculate the total restaurant sales and the sales of each product line that would be necessary to achieve the desired target net income. (Round intermediate calculations to 3 decimal places e.g. 0.251 and final answers to 0 decimal places, e.g. 2,510.) Total restaurant sales $ Sales from Each Product Appetizers $ Main entrees $ Desserts Beverages

Answer 1

Answer

• Requirement 1 , along with workings

Working		% of total sales	CM ratio	Weighted Average CM Ratio
	Appetizers	15.0%	70.0%	10.5%
	Main entrees	50.0%	25.0%	12.5%
	Desserts	10.0%	70.0%	7.0%
	Beverages	25.0%	80.0%	20.0%
A	Total Weighted Average CM Ratio			50.0%
B	Fixed Cost + Target Net Income	[$ 1362000 + 117000]		$1,479,000
C = B/A	Total Restaurant sales			$2,958,000 Answer
				Sales from Each Product = ANSWERS
C x % of sales	Appetizers			$443,700
C x % of sales	Main entrees			$1,479,000
C x % of sales	Desserts			$295,800
C x % of sales	Beverages			$739,500

• Requirement 2

Working		% of total sales	CM ratio	Weighted Average CM Ratio
	Appetizers	25.0%	70.0%	17.5%
	Main entrees	25.0%	10.0%	2.5%
	Desserts	10.0%	70.0%	7.0%
	Beverages	40.0%	80.0%	32.0%
A	Total Weighted Average CM Ratio			59.0%
B	Fixed Cost + Target Net Income	[$ 1362000 + 117000 + 585000]		$2,064,000
C = B/A	Total Restaurant sales			$3,498,305
				Sales from Each Product
C x % of sales	Appetizers			$874,576
C x % of sales	Main entrees			$874,576
C x % of sales	Desserts			$349,831
C x % of sales	Beverages			$1,399,322

• Requirement 3

Working		% of total sales	CM ratio	Weighted Average CM Ratio
	Appetizers	15.0%	70.0%	10.5%
	Main entrees	50.0%	10.0%	5.0%
	Desserts	10.0%	70.0%	7.0%
	Beverages	25.0%	80.0%	20.0%
A	Total Weighted Average CM Ratio			42.5%
B	Fixed Cost + Target Net Income	[$ 1362000 + 117000 + 585000]		$2,064,000
C = B/A	Total Restaurant sales			$4,856,471
				Sales from Each Product
C x % of sales	Appetizers			$728,471
C x % of sales	Main entrees			$2,428,235
C x % of sales	Desserts			$485,647
C x % of sales	Beverages			$1,214,118