Question

The Grand Inn is a restaurant in Flagstaff, Arizona. It specializes in south western style meals in a moderate price range. Paul Weld, the manager of Grand, has determined that during the last 2 years the sales mix and contribution margin ratio of its offerings are as follows.

Percent of Total Sales Contribution Margin Ratio

Appetizers 15% 70%

Main entrees 50% 25%

Desserts 10% 80%

Beverages 25% 80%

Paul is considering a variety of options to try to improve the profitability of the restaurant. His goal is to generate a target net income of $116,000. The company has fixed costs of $1,417,000 per year.


Calculate the total restaurant sales and the sales of each product line that would be necessary to achieve the desired target net income.

Answer 1

Answer and Explanation:

The computation of total restaurant sales and the sales of each product line is shown below:-

Sales = (Net income + Fixed costs + variable costs)

Let sales be "x"

Sales = ($1,417,000 + $116,000) ÷ 0.51

= $3,005,882.35

Total sales Contribution Contribution Each product

Margin Margin ratio sales

Appetizers 15% 70% 10.50% $450,882.353

Main entrees 50% 25% 12.50% $1,502,941.18

Desserts 10% 80% 8.00% $300,588.235

Beverages 25% 80% 20% $751,470.588

51.00% $3,005,882.36

For computing the Contribution Margin ratio we simply multiply the total sales with contribution margin of every product.