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Question 4 The Steak-Plus Restaurant would like to consider whether or not to renew their franchise agreement. There are two options. The first option involves an advertising fee of 5% of total sales and a royalty fee of 3% of total sales. The second option has a structure of an advertising fee (7% of total sales) and a royalty fee (10% of operating income). Please calculate the amount of franchise fee for each option, and discuss which option is a better choice. Steak-Plus Restaurant Statement of Income For the year ended December 31, 20X1 Amounts Percentage $ 800,000 200,000 25,000 1,025,000 78.0 19.5 25 100.0 240,000 60,000 10,000 310,000 30.0 30.0 40.0 30.2 9.8 15.6 5.9 100,000 160,000 60,000 320,000 630,000 31.2 61.5 Sales: Food Beverage Merchandise & Other Total Sales Cost of Sales: Food Beverage Merchandise & Other Total Cost of Sales Labor: Management Staff Employee Benefits Total Labor Prime Cost Other Controllable Expenses: Direct Operating Expenses Music & Entertainment Marketing Utilities General & Administrative Expenses Repairs & Maintenance Total Other Controllable Expenses Controllable Income Non-Controllable Expenses: Occupancy Costs Equipment Leases Depreciation & Amortization Total Non-Controllable Expenses Restaurant Operating Income 5.9 0.3 2.9 60,000 3,000 30,000 40,000 50,000 18,000 201,000 185,000 19.6 18.1 7.8 0.6 80,000 6,000 20,000 106,000 79,000 103