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.

		Percent of Total Sales			Contribution Margin Ratio
Appetizers		15	%		50	%
Main entrees		50	%		25	%
Desserts		10	%		50	%
Beverages		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 $1,053,000 per year.

Your answer is correct. 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 eg. 0.251 and final answers to decimal places, c. 2,510.) Total restaurant sales $ 2400000 Sales from Each Product $ 390000 Appetizers Main entrees $ 1300000 Desserts 260000 Beverages $ e Textbook and Media Attempts: 2 of 3 used Part 2 Your answer is correct. Paul believes the restaurant could greatly improve its profitability by reducing the complexity and selling price of its entrees to increase the number of clients that it serves. It would then more heavily market its appetizers and beverages. He is proposing to reduce the contribution margin ratio on the main entrees to 10% by dropping the average selling price. He envisions an expansion of the restaurant that would increase fixed costs by $585,000. At the same time, he is proposing to change the sales mix to the following 50% Appetizers Main entrees Desserts Beverages Percent of Contribution Total Sales Margin Ratio 25 % 25% 10% 10% 50% 40% 80% Compute 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 placeses. 10.251 and final answers to decimal places, eg. 2,510.) Total restaurant sales $ 3375000 Sales from Each Product 143730 Appetizers Main entrees $ 843750 Desserts 337500 Beverages $ 1350000 e Textbook and Media Attempts: 1 of 3 used Part 3 X Your answer is incorrect Suppose that Paul reduces the selling price on entrees and increases fixed costs as proposed in part (h), but customers are not swayed by the marketing efforts and the sales mix remains what it was in part (a). Compute the total restaurant sales and the sales of cach product line that would be necessary to achieve the desired target net income. (Round Intermediate calculations to 3 decimal places cg.10.251 and final answers to decimal places, eg. 2.510.) Total restaurant sales 5 4234483 Sales from Each Product $ 695172 Appetizers Main entrees $ 2117241 Desserts 423448 Beverages $ 1068621

Answer 1

Part 3 :

The contribution margin of each product will remain same as in part b . However, sales mix will be as maintained in part a.

So overall contribution margin will be =

Appetizers 15 ×50% = 7.5

Main entrees 50 x 10% = 5

Desserts 10 x 50% = 5

Beverages 25 x 80% = 20

Overall contributiin margin = 37.5%

Total restaurant sales = $4,680,000

(117,000+1,053,000+585,000)/37.5%

Sales from each product

Appetizers $702,000 (15%)

Main entrees $2,340,000 (50%)

Desserts $468,000 (10%)

Beverages $1,170,000 (25%)