Gray's 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

You are required to:

(a) Calculate the required average price per meal using the bottom approach to pricing for Gray's 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.