Paul Hulse, the owner of the Hulsey Restaurant in West Auland recently aended a management training seminar in which he was shown the benefits of using the contribution format to prepare income statements. He now wants to see his restaurant’s income statement prepared using the contribution margin format. In the year ending 31st December 20X1, the restaurant sold 20,000 covers with an average cover price of $25. Variable food and drink costs average $5 per cover and the head ef’s salary includes a performance-related component giving him a commission of $0.8 per cover sold. All of the hotel’s remaining costs can be viewed as fixed. The restaurant’s income statement presented in conventional format for the year ended 31st December 20X1 is as follows:

Required:

a) Using the contribution margin format, prepare the Hulsey Restaurant’s income statement for the year ending 31st December 20X1.

b) What is the restaurant’s current breakeven point?

c) If the volume of sales were to increase by 10 per cent, by how mu
would the restaurant’s profit increase?

d) If revenue next year reaed $600,000, what would the restaurant’s profit be?

e) If the restaurant were to increase average menu prices by 10 per cent but was able to maintain the current volume of covers sold, what would be the impact on profit?

Transcribed Image Text:

The Hulsey Restaurant Income statement for the year ending 31st December 20X1 Sales revenue Less: Cost of sales Gross Profit $ 500,000 100,000 400,000 Operating expenses Salaries and wages 160,000 Marketing 10,000 Rent 48,000 5,000 Maintenance Other Total operating expenses Net profit 10,000 233,000 $ 167,000