Part A: Break-Even Analysis - Big Gerson's Sizzlin' Grill and Bar [28 marks in total]

Big Gerson's is known as "The Happy Place" for diners who value quantity over quality due to their amazing one price all you can eat menu. The Leviathon Corporation which owns the Big Gerson's chain of diners are looking at the financial performance of an average restaurant which shows the following:

Selling Price $15.00

Cost of Goods Sold (per unit) $4.00

Variable Marketing Costs 10% of sales

Total Fixed Costs $2,850,000

Question 1 What are the total number of meals and the sales revenue Big Gerson's must achieve to have a net income of $475,000 in the average restaurant assuming no change to the selling price per meal?

Number of meals: ________________

Sales revenue: ________________

Question 2 If Big Gerson's increased their selling price to $18.00 AND required a profit of 10% of sales, what are the total number of meals and the resulting sales revenue that Big Gerson's must achieve.

Number of meals: ________________

Sales revenue: ________________

Question 3- What can Big Gerson's spend on fixed costs if they sell 500,000 meals at a selling price of $16.00 with their current cost of goods and variable costs as a % of sales if they were required to earn a profit of $400,000?

Fixed Costs: ________________

Question 4- Big Gerson's is contemplating adding an all you can eat luxury dessert bar to their restaurants. They believe that this would allow them to increase their price per meal to $20.00 and their market research shows that they could sell 800,000 meals annually with this new offering. Their CEO has set a profit requirement of $5.00 per meal. With fixed costs of $2.0 million and variable costs of 8% of sales, what are the maximum cost of goods sold per meal that Big Gerson's could incur?

Cost of Goods Sold per Meal: ________________