A bar is presently doing $500,000 a year in sales.

• Liquor cost is 40 percent
• Other variable costs at this level of sales revenue total $140,000.
• Fixed costs are $120,000.

Required:

1. What is the present annual operating income?
2. The owner wants to increase the managers salary by $10,000 a year. By how much will sales revenue have to increase to provide this additional salary and maintain the current level of operating income? (Any added revenue will come from increasing seat turnover by increasing customer service.)
3. Rather than increasing sales revenue by increasing seat turnover and customer service, the owner decides to increase menu prices by 5 percent. The owner believes the price increase can be made without losing any customers and without increasing cost of sales or other variable costs. The original variable cost functions and the manager salary increase still apply. What will the bars operating income be?
4. With the new pricing structure as indicated in part c, how much can sales revenue decrease before operating income falls below $30,000 per year?