Question

The Express Meal has two restaurants that are open 24 hours a day. Fixed costs for the two restaurants together total $ 451 comma 000 per year. Service varies from a cup of coffee to full meals. The average sales check per customer is $ 8.20. The average cost of food and other variable costs for each customer is $ 4.10. The income tax rate is 30​%. Target net income is $ 114 comma 800. Requirements 1. Compute the revenues needed to earn the target net income. 2. How many customers are needed to break​ even

Answer 1

(1) $1,230,000

(2) 110,000 customers

Step-by-step explanation:

Given that,

Fixed cost = $451,000 per year

Average sales check per customer = $ 8.20

Average cost of food and other variable costs for each customer = $ 4.10

Income tax rate = 30​%

Target net income = $114,800

(1) Contribution margin ratio:

= (Selling price - Variable price) ÷ Selling price

= ($ 8.20 - $ 4.10) ÷ $ 8.20

= 0.5

Income before tax:

= Net income ÷ (1 - Tax rate)

= $114,800 ÷ (1 - 0.3)

= $164,000

Desired revenue (dollars):

= (Fixed cost + Income before tax) ÷ Contribution margin ratio

= ($451,000 + $164,000) ÷ 0.5

= $1,230,000

(2) Customers are needed to break​ even:

= Fixed cost ÷ contribution per unit

= $451,000 ÷ ($8.20 - $4.10)

= $451,000 ÷ $4.10

= 110,000 customers