Question

E3-27 (book/static) The Home Style Eats has two restaurants that are open 24 hours a day. Fixed costs for the two restaurants together total $ 430 comma 500 per year. Service varies from a cup of coffee to full meals. The average sales check per customer is $ 8.75. The average cost of food and other variable costs for each customer is $ 3.50. The income tax rate is 36​%. Target net income is $ 117 comma 600. Requirements 1. Compute the revenues needed to earn the target net income. 2. How many customers are needed to break​ even? To earn net income of $ 117 comma 600​? 3. Compute net income if the number of customers is 170 comma 000. Requirement 1. Compute the revenues needed to earn the target net income. Using the equation​ method, select the basic formula used to compute the revenues needed to earn the target net income. - - = / Choose from any drop-down list and then click Check Answer. 6 parts remaining

Answer 1

Step-by-step explanation:

1.

Contribution Margin=Sales - variable cost =$8.75-$3.50=$5.25

Contribution Margin Ratio = Contribution Margin / Sales = $5.25/ $8.75=60%

Pre-Tax Net Income=Net Income/(1-tax rate)

$117,600/(1-0.36)=$183,750

Target Revenue =Fixed cost +Target Pre-Tax net Income/Contribution margin Ratio =($430,500+$183,750)/0.6=$1,023,750

2. Number of customers needed to Break Even

Fixed costs/Contribution margin per unit=$430,500/$5.25=82,000 Customers

Number of customers to earn 117,600 = (Fixed costs + 117,600)/5.25 = (430,500+117,600)/5.25 = 104,400

3.

Sales (170,000*8.75) 1,487,500

Less: Cost of goods sold (170,000*3.50) -595,000

Contribution margin 892,500

Less: fixed costs -430,500

Net Income before tax 462,000

Less: tax rate (462,000*36%) - 166,320

Net Income after tax 295,680