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 Appetizers 15 % 70 % Main entrees 50 % 25 % Desserts 10 % 70 % Beverages 25 % 80 % Paul is considering a variety of options to try to improve the profitability of the restaurant. His goal is to generate a target net income of $117,000. The company has fixed costs of $1,363,000 per year. (a) Your answer is correct. Calculate the total restaurant sales and the sales of each product line that would be necessary to achieve the desired target net income. (Round intermediate calculations to 3 decimal places e.g. 0.251 and final answers to 0 decimal places, e.g. 2,510.) Total restaurant sales $ 2960000 Sales from Each Product Appetizers $ 444000 Main entrees $ 1480000 Desserts $ 296000 Beverages $ 740000 e Textbook and Media (b) Your Answer Correct Answer Your answer is partially correct. 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 would 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 Contribution Margin Ratio Appetizers 25 % 70 % Main entrees 25 % 10 % Desserts 10 % 70 % Beverages 40 % 80 % Compute the total restaurant sales, and the sales of each product line that would be necessary to achieve the desired target net income. (Round intermediate calculations to 3 decimal places e.g. 10.251 and final answers to 0 decimal places, e.g. 2,510.) Total restaurant sales $ 2240000 Sales from Each Product Appetizers $ 875000 Main entrees $ 875000 Desserts $ 350000 Beverages $ 1400000 e Textbook and Media (c) X Your answer is incorrect. Suppose that Paul reduces the selling price on entrees and increases fixed costs as proposed in part (b), but customers are not swayed by the marketing efforts and the sales mix remains what it was in part (a). Compute the total restaurant sales and the sales of each product line that would be necessary to achieve the desired target net income. (Round intermediate calculations to 3 decimal places e.g. 10.251 and final answers to O decimal places, e.g. 2,510.) Total restaurant sales $ 2800000 Sales from Each Product Appetizers $ 420000 Main entrees $ 1400000 Desserts $ 280000 Beverages $ 700000 e Textbook and Media Save for Later Attempts: 1 of 5 used Submit
