A4-73 DETERMINE THE FEASIBILITY OF A BUSINESS PLAN

(Learning Objective 2)

Brian and Nui Soon live in Sudbury. Two years ago, they visited Thailand. Nui, a professional chef, was impressed with the cooking methods and the spices used in the Thai food. Sudbury does not have a Thai restaurant, and the Soons are contemplating opening one. Nui would supervise the cooking and Brian would leave his current job to be the matre d'. The restaurant would serve dinner Tuesday through Saturday. Brian has noticed a restaurant for lease. The restaurant has seven tables, each of which can seat four. Tables can be moved together for a large party. Nui is planning two seatings per evening, and the restaurant will be open 50 weeks per year. The Soons have drawn up the following estimates: Average revenue, including beverages and dessert................................................................... $ 40 per meal Average cost of the food........................................................................................................... $ 12 per meal Chef's and dishwasher's salaries............................................................................................. $50,400 per year Rent (premises, equipment)..................................................................................................... $ 4,000 per month Cleaning (linen and premises)................................................................................................. $ 800 per month Replacement of dishes, cutlery, glasses................................................................................... $ 300 per month Utilities, advertising, telephone................................................................................................ $ 1,900 per month Requirement Compute the annual break-even number of meals and sales revenue for the restaurant. Also, compute the number of meals and the amount of sales revenue needed to earn operating income of $75,600 for the year. How many meals must the Soons serve each night to earn their target income of $75,600? Should the couple open the restaurant? Support your answer.