Question

Pertinent information already calculated or given: Sales Revenue: $639,111 Total Variable cost % (as percentage of...

Pertinent information already calculated or given:

Sales Revenue: $639,111

Total Variable cost % (as percentage of sales revenue): 51.7%

Total Fixed Costs: $264,660

Average check: $9.59

Breakeven sales revenue = Fixed costs / (1 - VC%) = $264,660 / (1 - 51.7%) = $547,950

Breakeven in terms of number of guest using average check = $547,950 / $9.59 = 57,138 guests

The question is:

To increase the operating income by $20,000 in Year 2007’s sales revenue, how many extra guests are required? 4C will spend $1,000 for additional advertising and promotion as a fixed cost for Year 2007.

Business   Accounting   
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Homework Answers

Answer #1

To increase the operating income by $20,000 in Year 2007’s sales revenue, Extra guests required = 4,533 (approx)

Workings

To calculate extra guests required we first need to calculate new break even number of guests to earn additional $20,000 in operating income

New break even sales = ((Fixed Cost+Desired Profit)/Contribution %)

= (264660+1000+20000)/(1-51.7%) = 285660/(48.3%) = $591,428.57

New break even number of guests = 591428.57/9.59 = 61,671

Additional guests requried = 61671-57138 = 4533

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