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You have the following projections about the costs in a family restaurant for next year:

Net income required: 22% after income tax on the owner's present investment of $80,000, income tax rate is 28%.

Depreciation: Present book value (consolidated) of furniture and equipment is $76,000, depreciation rate is 20%.

Interest: Interest on a loan outstanding of$35,000 is 8%

Known Costs:

Insurance $ 3,000

License 2,500

Utilities 8,400

Maintenance 3,600

Administration 9,800

Salaries 41,600

Variable Costs:

Food cost, 38% of sales revenue

Wage cost, 34% of sales revenue

Other costs, 12% of sales revenue

a. What sales revenue would the restaurant have to achieve next year in order to acquire the desired net income after tax?

b. What is the required average check needed to achieve the annual sales revenue objective if the restaurant is open 365 days, had 60 seats, and had an average seat turnover of 2.5 times per day?

Expert A

User AlbertS
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1 Answer

3 votes

Answer:

a. First, we need to calculate the total fixed costs:

Depreciation: $76,000 * 0.2 = $15,200

Interest: $35,000 * 0.08 = $2,800

Known costs: $3,000 + $2,500 + $8,400 + $3,600 + $9,800 + $41,600 = $72,900

Then, we need to calculate the required net income after tax:

Net income required: $80,000 * 0.22 = $17,600

Income tax rate: 28%

Required net income after tax: $17,600 / (1 - 0.28) = $23,571

Finally, we can calculate the required sales revenue by adding the fixed costs and the required net income after tax:

Required sales revenue: $72,900 + $23,571 = $96,471

b. To calculate the required average check, we need to divide the required sales revenue by the number of seats and the average seat turnover:

Required average check: $96,471 / 60 seats / 2.5 seat turns per day = $112.69

Therefore, the restaurant would need to achieve sales revenue of $96,471 next year in order to acquire the desired net income after tax. The required average check would be $112.69 if the restaurant is open 365 days, has 60 seats, and has an average seat turnover of 2.5 times per day.

Hope this helps!! :))

User AtomicBoolean
by
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