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Grays Crib, a 100 seat fine-dining restaurant, expects to start operations in December of 2020. Gray, the owner, heard you talking about the bottom-up approach
Grays Crib, a 100 seat fine-dining restaurant, expects to start operations in December of 2020. Gray, the owner, heard you talking about the bottom-up approach to pricing, and approached you for your assistance. She has provided you with the following information.
Her required return on investment (ROI) is 45%.
Items
Amount
Investment
$450,000
Capital Borrowed
$100,000
Interest rate
12%
Income tax rate
30%
Fixed Cost (Excluding interest)
$175,000
Labour Cost (% of food sales)
20%
Food Costs (% of sales)
40%
Labour Cost (fixed)
$120,000
Controllable Fixed Costs
$115,000
Seat Turnover (times per day)
10
Days Open during the year
360
(a) Calculate the required average price per meal using the bottom approach to pricing
for Grays Crib.
[8]
(b) Assume the restaurant required revenue is divided among breakfast, lunch and dinner, 25%, 30%, and 45% respectively. Further, assume that seat turn for breakfast, lunch
and dinner are 2, 2.5 and 3 respectively. Calculate the average price for breakfast
lunch and dinner.
[6]
(c) Explain two (2) other pricing methods, giving advantages and disadvantages of
each.
[4]
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