Question

The Express Banquet has two restaurants that are open 24 hours a day. Fixed costs for the two restaurants together total $509,000 per year. Service varies from a cup of coffee to full meals. The average sales bill per customer is $9.50. The average cost of food and other variable costs for each customer is $3.80. The income tax rate is 30​%. Target net income is $122,500.

Required

1. Compute the revenues needed to earn the target net income.

2. How many customers are needed to earn net income of $122,500​? How many customers are needed to break​ even?

3. Compute net income if the number of customers is 170,000.

Requirement 1. Using the equation​ method, select the basic formula used to compute the revenues needed to earn the target net income.

Answer 1

1.)	Sales Revenue	$ 1,140,000	=(509000+(122500/70%))/60%
	( Fixed cost + Pretax profit )/ Contribution margin ratio
	Working:
	Contribution margin ratio	60%	=(9.5-3.8)/9.5
2.)	Customers needed	120,000	=1140000/9.5
	( Taget sales Revenue / average sale bill)
	Breakeven point-Customers	89,298	=509000/(9.5-3.8)
	( Fixed cost / Contribution per customer )
3.)		Amount $
	Sales Revenue ( 170,000 x 9.50 )	1,615,000
	Less: Variable costs ( 170,000 x 3.80 )	646,000
	Contribution margin	969,000
	Less: Fixed costs	509,000
	Earnings before tax	460,000
	Less: Income tax @30%	138,000
	Net Income	322,000