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.

Repas P&L and 5% Price Reduction Forecasted P&L

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? ____________.