Question

The Rapid Meal has two restaurants that are open 24 hours a day. Fixed costs for the two restaurants together total $459,000 per year. Service varies from a cup of coffee to full meals. The average sales check per customer is $8.50. The average cost of food and other variable costs for each customer is $3.40. The income tax rate is 30%. Target net income is $107,100. Requirements 1. Compute the revenues needed to earn the target net income. 2. How many customers are needed to break even? To earn net income of $107,100? 3. Compute net income if the number of customers is 135,000. Requirement 1. Compute the revenues needed to earn the target net income. Using the equation method, select the basic formula used to compute the revenues needed to earn the target net income. The revenues needed to earn the target net income is $ Requirement 2. How many customers are needed to break even? To earn net income of $107,100? Determine the formula that is used to compute how many customers are needed to break even, then compute the number of customers needed. = Customers needed to break even Determine the formula that is used to compute how many customers are needed to earn net income of $107,100, then compute the number of customers needed. = Customers needed to earn $107,100 Choose from any list or enter any number in the input fields and then continue to the next question. ?

Answer 1

Requirement 1

Revenues

-

Variable costs

-

Fixed costs

=

Target net income

/

(1 - Tax rate)

The revenue needed to earn the target net income is $1,020,000.

Desired Revenue = (Fixed costs + Target net income before tax) / Contribution margin ratio

Target net income before tax = $107,100 / (1 - 30%)

= $153,000

Contribution margin ratio = (Sales price - Variable cost) / Sales price

= ($8.50 - $3.40) / $8.50

= 60%

Desired Revenue = ($459,000 + $153,000) / 0.60

= $1,020,000

Requirement 2

Fixed costs	/	Contribution margin per customer	=	Customers needed to break even
$459,000	/	$5.10	=	90,000

Contribution margin per customer = $8.50 - $3.40

= $5.10

Customers needed to earn $107,100.

Total Revenues	/	Sales check per customer	=	Customers needed to earn $107,100
$1,020,000	/	$8.50	=	120,000

Requirement 3

Change in net income	+	Current target net income	=	Net income
$53,550	+	$107,100	=	$160,650

Change in net income = (135,000 - 120,000) customers * (Contribution margin per unit) * (1 - 30%)

= 15,000 * $5.10 * 70%

= $53,550