Question
Against your advice, your brother-in-law (who won big in the Washington State Lottery) has decided to open an expensive gourmet restaurant across from your college's
Against your advice, your brother-in-law (who won big in the Washington State Lottery) has decided to open an expensive gourmet restaurant across from your college's campus. He feels that operating anything less than a four-star restaurant would be a waste of his creative talents. Such a restaurant will have certain fixed costs. These fixed costs include depreciation, salaries, heat, advertising, electricity, interest, license, fees, and property taxes. The only variable costs would be food, beverages, and preparation costs. The fixed costs are estimated at $438,000 per year. The average variable cost per meal is estimated at $13.00. These meals would be sold for an average of $25.00 each. Please provide how many units will the restaurant have to sell each year to break even, how many units will the restaurant have to sell each evening (use a 365-day year) to break even, considering your community, does it seem likely that there is a large enough market for gourmet food for the restaurant to operate at or beyond the breakeven point, if the business does NOT break even, what advice will you give your brother in law? Provide guidance as to the additional research that is needed in a situation like this, and how much profit will the restaurant earn on sales of 40,000 meals
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