Question

28 PROBLEM 2 (4 pts) 29 George plans to open a restaurant in Birmingham. The menu calls for the average customer to spend $15 on each meal. Total fixed costs are $20,000 per month. The total variable costs per meal are expected to average $6. 30 32 a. How many meals does George need to sell in a year to breakeven? 34 35 36 b. How many meals does George need to sell in a year to earn a $100,000 net margin? 37 38 c. How many meals does George need to sell in a year to earn a net margin equal to 10% of sales revenue?

Answer 1

Solution a:

Contribution margin per meal = $15 - $6 = $9 per meal

yearly fixed cost = $20000*12 = $240,000

Breakeven Meals = Fixed costs / Contribution margin per meal = $240000/ $9 = 26,667 meals

Solution b:

Meals to be sold to earn net margin of $100,000 = (Fixed costs + Net Margin) / Contribution margin per meal

= ($240000+ $100000) / $9 = 37,778 meals

Solution c:

Let the Number of meals to be sold to earn 10% of sales revenue = "m"

Sales revenue will be = m*$15

Therefore,

Number of Meals to be sold = (Fixed costs + 10% of Sales revenue) / Contribution margin per meal

m = [$240000+ (m*$15*10%)] / $9

9m = $240000 + 1.5m

9m - 1.5m = $240000

7.5m = $240000

m = 240000/ 7.5

m = 32,000 meals