The Bricktown Pub is a restaurant that specializes in classic east coast fare in a moderate price range. Debbie MacNeil, the manager of Bricktown, has determined that during the last two years the sales mix and contribution margin of its offerings are as follows:

Debbie is considering a variety of options to try to improve the restaurant's profitability. Her goal is to generate a target operating income of $155,000. The company has fixed costs of $400,000 per year.
Instructions
(a) Calculate the total restaurant sales and the sales of each product line that would be necessary in order to achieve the desired target operating income.
(b) Debbie believes the restaurant could greatly improve its profitability by reducing the complexity and selling prices of its entrees to increase the number of clients that it serves, and by more heavily marketing its appetizers and beverages. She is proposing to reduce the contribution margin on the main entrees to 15% by dropping the average selling price. She envisions an expansion of the restaurant that would increase fixed costs by 50%. At the same time, she is proposing to change the sales mix to the following:

Calculate the total restaurant sales, and the sales of each product line that would be necessary in order to achieve the desired target operating income.
(c) Suppose that Debbie drops the selling price on entrees, and increases fixed costs as proposed in part (b), but customers are not swayed by her marketing efforts, and the product mix remains what it was in part (a). Calculate the total restaurant sales and the sales of each product line that would be necessary to achieve the desired target operating income. Comment on the potential risks and benefits of this strategy.

Transcribed Image Text:

Appetizers Main entrees Desserts Beverages Percent of Total Sales 1096 55% 10% 25% Contribution Margin Ratio 50% 30% 60% 75% Percent of Total Sales 15% 30% 15% 40% Contribution Margin Ratio Appetizers Main entrees Desserts Beverages 50% 15% 60% 75%