Bob and Susan Menzel are planning to open a food service operation and have heard about operating leverage. They are forecasting annual sales and depreciation expenses as follows: Annual sales Food costs variable Wages Other Fixed costs - $ 500,000 30% 20% 10% $ 100,000 40% They have the opportunity to sign a variable, mixed, or fixed lease for the space and equipment. The lease expense is in addition to the above listed expenses. 2 The options are as follows: B Variable Mixed 5 Fixed 6 7 Required: 69 6% of sales 2% of sales plus $ 2,500 per month 1,500 per month 81. Determine the level of sales required to break even for each lease option. 92. If the food service operation has annual sales of $ 700,000 what is the net income given 10 each lease option? 21 3. If annual sales are only $ 400,000 which lease option do you recommend? Explain 2 using numbers. 23 24 25