Question

RapidMeal Co. has two restaurants that are open 24 hours per day. Fixed costs for the two restaurants together totals $450,000 per year. Service varies from a cup of coffee to full meals. The average sales check for each customer is $8.00. The average cost of food and other variable costs for each customer is $3.20. The income tax rate is 30%. Target net income is $105,000.

a. Determine the revenues needed to obtain the target net income.
b. How many sales checks are needed to (a) earn a net income of $105,000 and (b) to break even?
c. Determine net income if the number of sales checks is 150,000.

Answer 1

a) 1000000 , b) 125000 & 93750 , c) 270000

Step-by-step explanation:

Target Net profit = 105000

Let profit before tax be p

So, p - 30%p = 105000

0.70p = 105000

p = 150000

Total Net profit = Total revenue - Total cost

Average net profit = Average revenue - average cost. Let no. of customers, or sales checks =x

Total profit / x = 8 - (450000/ x + 3.2)

150000/ x = 8 - 3.2 - 450000/x

150000/x = 4.8 - 450000/x

x (no. of customers needed) = 125000 [b]

a] Total revenue needed = Average revenue x no. of customers needed

= 125000 x 8 = 1000000

b] Customers needed for break even {where TR = TC}

8x = 450000 + 3.2x

x = 93750

c] Net Income if sales checks is 150000 = TR - TC

= 150000 (8) - 450000 - 3.2 (150000) = 1200000 - 450000 - 480000

= 270000