Danny's assumptions with a 5 percent decrease in prices and very careful cost control are: 1. Food
Question:
Danny's assumptions with a 5 percent decrease in prices and very careful cost control are:
- 1.
- Food cost percent will increase from 28 percent to 30 percent of food sales.
- 2.
- Beverage cost percent will increase from 20 percent to 22 percent of beverage sales.
- 3.
- There will be no change in labor cost or other operating expense.
- 4.
- Due to increased numbers of guests served, there will be no reduction in total food and beverage revenue.
Current Price
With 5% Price Decrease
% Change
SALES:
Food
$ 3,750,000
Beverage
800,000
Total sales
$ 4,550,000
$ 4,550,000
Guests served
175,000
Food check average
$ 21.43
Beverage check average
$ 4.57
COST OF SALES:
Food (28%)
$ 1,050,000
Food (30%)
-
Beverage (20%)
$ 160,000
Beverage (22%)
-
Total Cost of Sales
$ 1,210,000
-
GROSS PROFIT:
Food
$ 2,700,000
-
Beverage
$ 640,000
-
Total Gross Profit
$ 3,340,000
-
OPERATING EXPENSES:
Salaries and wages (30%)
$ 1,365,000
$ 1,365,000
Employee benefits
$ 410,000
$ 410,000
Direct operating expenses
$ 130,000
$ 130,000
Music and entertainment
$ 2,500
$ 2,500
Marketing
$ 145,000
$ 145,000
Utility services
$ 175,000
$ 175,000
Repairs and maintenance
$ 105,000
$ 105,000
Administrative and general
$ 169,000
$ 169,000
Occupancy
$ 250,000
$ 250,000
Depreciation
$ 85,000
$ 85,000
Total Operating Expenses
$ 2,836,500
$ 2,836,500
Operating Income
$ 503,500
Interest
$ 190,000
$ 190,000
Income Before Income Taxes
$ 313,500
Per Guest Income Before Income Taxes
A.
What is Danny's currentPer Guest Income Before Income Taxes?____________
B.
If prices are reduced by 5 percent, how many guests must Danny serve to generateTotal Salesequal to those he achieved last year? ____________
C.
If prices are reduced by 5 percent, what is the percentage change in guests needed to generate Total Sales equal to that of last year? ____________
D.
What would be Danny'sPer Guest Income Before Income Taxesif he reduced prices and served the number of guests needed to generateTotal Salesequal to last year? ____________.
E.
What would be the percentage change in Danny'sPer Guest Income Before Income Taxesif he reduced prices and served the additional guests needed to generate TotalSales equalto last year? ____________.
Expert Answer:
