Bottom-up Pricing

You own a 132-seat restaurant, which opens 6 days a week for 52 weeks of the year.

The seat turnover per day is 2.2.

You have the following projections about the costs for next year. You require an ROE of 18% on your $240,000 in a restaurant.

Tax rate: 28%

Furniture & Equipment: Book value = $112,000, Depreciation = 20% per year

Bank loan: Balance owed: $50,000, interest rate: 12%

Insurance: $4,500Licenses: $3,200Utilities: $12,600

Maintenance: $1,200Salary: $48,900

Cost of sales (food & beverage): 35% of sales revenue

Wage: 33% of sales revenue

Other variable costs: 8% of sales revenue

Calculate the sales revenue and average check required to cover all restaurants expenses and profits for the next year.

*Show your work in the cells for full credits.

Revenue

- Variable cost

Contribution margin

- Fixed cost

Operating income

- Tax

Net income

Hint: Follow the following steps to find the answers.

1.NI = investment * required rate of return

2.OI = NI / (1 - tax rate)

3.Required contribution margin in $ = required op. income + fixed costs

4.Required revenue = CM$ / (1 - VC%)

5.average check = revenue / (seat * turnover * operating days)