Managerial accounting.

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P19-3A The Grand Inn is a restaurant in Flagstaff, Arizona. It specializes in southwestern style meals in a moderate price range. Paul Weld, the manager of Grand, has determined that during the last 2 years the sales mix and contribution margin ratio of its offerings are as follows. Percent of Total Sales Contribution Margin Ratio 50% 25% 50% 80% Appetizers Main entrees Desserts Beverages 50% 10% 25% Paul is considering a variety of options to try to improve the profitability of the restaurant. His goal is to generate a target net $117,000. The company has fixed costs of $1,053.0oo per year. Instructions (a) Calculate the total restaurant sales and the sales of each product line that would be necessary to achieve the desired target net income. (a) Total sales $2,600,000 (b) Paul believes the restaurant could greatly improve its profitability by reducing the complexity and selling price of its entrees to increase the number of clients that it serves. It would then more heavily market its appetizers and beverages. He is proposing to reduce the contribution margin ratio on the main entrees to 10% by dropping the average selling price. He envisions an expansion of the restaurant that u increase fixed costs by $585,000. At the same time, he is proposing to change the sales mix to the following. Percent of Total Sales 25% 25% 10% 40% Contribution Margin Ratio 50% 10% 50% 80% Appetizers Main entrees Desserts Beverages Compute the total restaurant sales, and the sales of each product line that would be necessary to achieve the desired target net income (b) Total sales $3.375,000 (c) Suppose that Paul reduces the selling price on entr rees and increases fixed costs as proposed in part (b), but customers are not swayed by eting efforts and the sales mix remains what it was in part (a). Compute the total restaurant sales and the sales of each product necessary to achieve the desired target net income. Comment on the potential risks and benefits of this strategy Determine sales mix with limited resources