Question

You have the following projections about the costs in a fast food restaurant for the next year: Net income [AT] required is 18% on the equity investment of $240,00. The income tax rate is 28%. Depreciation on restaurant furnishings and equipment is 20% of the present book value of $112,000. Interest on the bank loan is 12% of the present balance owed of $50,000. Other costs are:

Insurance expense                                               $4,500
Licenses expense                                                $3,200
Utilities expense                                               $12,600
Maintenance expense                                             $1,200
Management salary expense                                      $48,900
Cost of Sales (food and beverage expenses)                      35% of total sales revenue
Variable wage expenses                                         33% of total sales revenue
Other variable expenses                                         8% of total sales revenue

a) Calculate the sales revenue required to cover all the restaurant expenses next year: $___________

b) Calculate the restaurant's overall average check, given that the restaurant has 132 seats and that is is open six days a week for 52 weeks of the year, and that 2.2 seat turnovers per day are achieved. 

		Sales Revenue: $1,054,524 Overall Average Check: $11.64
		Sales Revenue: $661,667 Overall Average Check: $7.30
		Sales Revenue: $208,947 Overall Average Check: $2.31

Answer 1

Answer:

Sales Revenue: $661,667

Overall Average Check: $7.30

Workings:

a)

Sales ($158800/24%)	100%	661667
Variable expenses
Cost of sales	35%
Variable wage expenses	33%
Other variable expenses	8%
Total variable expenses	76%
Contribution margin*	24%	158800
Insurance expense		4500
Licenses expense		3200
Utilities expense		12600
Maintenance expense		1200
Management salary expense		48900
Depreciation expense ($112000 x 20%)		22400
Interest expense ($50000 x 12%)		6000
Income before income taxes ($43200/72%)	100%	60000
Income tax expense	28%
Net income ($240000 x 18%)	72%	43200

*Contribution margin = Income before income taxes + Expenses

b)  Total seats = 132 x 6 x 52 x 2.2 = 90604.8

Overall average check = Sales revenue/Total seats = $661667/90604.8 = $7.30