Tim Stokes recently invested $325,000 to acquire the RockOyster, a restaurant on Vancouver Island. RockOyster meals sell for an average of $30, and the average variable cost per meal is $8. Tim believes that by reducing newspaper advertising, he can reduce advertising fixed costs by 10% from their current level of $12,000 per annum. Other fixed costs amount to $100,000 per annum.

a What will be the restaurants breakeven level of sales in units and dollars subsequent to the reduced advertising?

b Assuming the reduced level of advertising, determine how many meals must be sold if Tim wants to earn a 20% after-tax annual rate of return on his investment. Assume the restaurants profits are subject to a 35% tax rate.