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Capital City Hotel's restaurant is open for breakfast, lunch and dinner. The accountants prepared a segmented contribution margin income statement for the past year based
Capital City Hotel's restaurant is open for breakfast, lunch and dinner. The accountants prepared a segmented contribution margin income statement for the past year based on the three meal periods, as shown below. The manager is concerned with the lunch period, as it has been showing a loss for the past few years. Capital City Hotel-Restaurant Segmented Contribution Margin Income Statement For the Year Ended December 31, 2020 Revenue Breakfast $500,000 Lunch Dinner Total $400,000 $200,000 $1,100,000 Variable Costs (350,000) (300,000) (80,000) (730,000) Contribution Margin 150,000 100,000 120,000 370,000 Fixed Costs (90,000) (150,000) (35,000) (275,000) Income from Operations $60,000 ($50,000) $85,000 $95,000 Required Recommend whether management should keep or drop the lunch period service based on the following independent scenarios. a) Assume that all the fixed costs relating to the lunch service will remain with the company if it stops serving lunch. b) Assume that all the fixed costs relating to lunch service will no longer be incurred by the company if it stops serving lunch. c) Assume that only 30% of the fixed costs relating to lunch service will remain if the company stops serving lunch
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