QUESTION 5 about the costs in a fast food restaurant for the

QUESTION 5 about the costs in a fast food restaurant for the next year Net income AT required is 18% on te equity investment of S24000 The income tax rate is 20% nt is 20% of the present book value of S 112,000 Interest on the bank loan is 12% of the present balance owed of S50 000 0ther cots are on restaurant $4,500 $3.200 12,600 $1,200 Insurance expense 33% of total sales revenue 8% of total sales revenue wage expenses b) O Sales Revenue: $1,054.524 Overall Average Check $11.64 O Sales Revenue: $661 667 Overall Average Check $7.30 Overall Average Check $2.31 O Type here to search

Solution

a) Calculation of sales revenue is shown as follows:-

Required Net Income after tax = Equity Investment*18%

= $240,000*18% = $43,200

Net Income Before tax = Net Income after tax/(1 - tax rate)

= $43,200/(1-28%) = $60,000

Interest expense = $50,000*12% = $6,000

Depreciation = $112,000*20% = $22,400

Earning before interest and depreciation = $60,000+$6,000+$22,400 = $88,400

Other Fixed costs = Insurance exp+License exp+Utilities exp+Maintenance exp+Management salary exp

= $4,500+$3,200+$12,600+$1,200+$48,900 = $70,400

Contribution Margin = Earning before interest and depreciation+Other Fixed costs

= $88,400+$70,400 = $158,800

Total Variable exp. as a precentage of sales revenue = Cost of sales+Variable wages+Other variable exp

= 35% of total sales revenue+33% of total sales revenue+8% of total sales revenue

= 76% of total sales revenue

Contribution margin % of sales revenue = 100% - 76% = 24%

Total Sales Revenue = Contribution Margin/Contribution margin %

= $158,800/24% = $661,667

Therefore the total sales revenue is $661,667.

b) No. of customers served during the year = (Total seats*seat turnovers per day)*6 days in a week*52 weeks

= (132 seats*2.2)*6*52 = 90,605 customers

Overall Average Check = Total Sales revenue/No. of customers

= $661,667/90,605 = $7.30 per customer

Therefore the overall average check is $7.30 per customer.