Question

You have the following projections about the costs in a fast food restaurant for the next...

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
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: 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

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