Question

During 2016, the Beach Restaurant had sales revenues and food costs of $800,000 and $600,000, respectively. During 2017, Beach plans to introduce a new menu item that is expected to increase sales revenues by $100,000 and food costs by $40,000. Assuming no changes are expected for the other food items, operating profits for 2017 are expected to increase by ______

Answer 1

30%

Step-by-step explanation:

We have to have three defined concepts:

Sales revenues (SR): This is the income generated by selling a product/service.

Production costs (PC): The costs of producing say product/service that we are offering to the market.

Operating profits (OP): This are the profits generated by the operationg of our business.

With those concepts in mind we need to find the Operating profits for each year so we can found the percent changes in the operating profits.

OP = SR - PC

2016 - OP (2016) = 800,000 - 600,000 = 200,000

2017 - OP (2017) = 900,000 - 640,000 = 260,000

Now we calculate the expectend increase using the percent change (%C) formula:

%C =
`(Finalvalue - Initialvalue)/(Initialvalue) * 100`

Replacing:

%C =
`(260,000 - 200,000)/(200,000) * 100 = 30`

Our initial value is the OP of 2016 and our final value is the OP of 2017, so the OP for 2017 are expected to increase by a 30%.