Question

Use the following restaurant details to answer these questions:

• The restaurant can seat 50 people at a time.

• Fixed costs for salaries, rents, some utilities, property tax, and advertising run $5,000 per month • Variable costs other than food (linens, hourly labor, dishes, and disposable supplies) run $3 per customer on average.

• The restaurant is open Tuesday-Saturday for dinner only.

a. If the restaurant wants to keep the food cost at 32 percent, what price does the restaurant have to charge for a meal with $3.50 in food ingredients?

b. If the average ticket runs $10 per customer with variable cost of preparing a meal is $5, how many meals (QBE) must be served before the restaurant breaks even?

c. If you want to make a profit of $5,000 per month, how many turns (customers per seat per night) do you need to average? Assume four weeks in a month.

d. If the best realistic estimate of meals sold in a month is 1,500 (N) for your restaurant and you keep food cost to 35 percent, what average ticket price do you need to hit your profit goal ($5000)?

Answer 1

(a) $3.50 in food ingredients is 32% of price.

Price per meal = $3.5 x (100% / 32%) = $10.94

(b) QBE = Fixed cost / (Price - Unit variable cost) = $5,000 / $(10 - 5) = $5,000 / $5 = 1,000 meals

(c) Required monthly customers = (Fixed cost + Target profit) / (Price - Unit variable cost)

= $(5,000 + 5,000) / $(10 - 5) = $10,000 / $5 = 2,000

Customers per night = 2,000 / (4 x 7) = 71 (Considering integer value)

(d) If required price be $P, then

Food cost = 35% x P = 0.35P

Total unit variable cost = 0.35P + $3

Therefore,

Quantity x (Price - Unit variable cost) - Fixed cost = Profit

1,500 x [P - (0.35P + 3)] - $5,000 = $5,000

1,500 x (P - 0.35P - 3) = $10,000

0.65P - 3 = $10,000/1,500 = $6.67

0.65P = $6.67 + $3 = $9.67

P = $9.67/0.65

P = $14.87 per meal