he Hillside Inn is a restaurant in Flagstaff, Arizona. It specializes in southwestern style meals in a moderate price range. Phil Weld, the manager of Hillside, has determined that during the last 2 years the sales mix and contribution margin ratio of its offerings are as follows. Percent of Contribution Total Sales Margin Ratio Appetizers 15% 50% Main entrees 50% 25% Desserts 10% 50% Beverages 25% 80% Phil is considering a variety of options to try to improve the profi tability of the restaurant. His goal is to generate a target net income of $117,000. The company has fi xed costs of $1,053,000 per year. Instructions (a) Calculate the total restaurant sales and the sales of each product line that would be necessary to achieve the desired target net income.
The Hillside Inn is a restaurant in Flagstaff, Arizona. It specializes in southwestern
style meals in a moderate price range. Phil Weld, the manager of Hillside, has determined
that during the last 2 years the sales mix and contribution margin ratio of its offerings are
as follows.
Percent of Contribution
Total Sales Margin Ratio
Appetizers 15% 50%
Main entrees 50% 25%
Desserts 10% 50%
Beverages 25% 80%
Phil is considering a variety of options to try to improve the profi tability of the restaurant.
His goal is to generate a target net income of $117,000. The company has fi xed costs of
$1,053,000 per year.
Instructions
(a) Calculate the total restaurant sales and the sales of each product line that would be
necessary to achieve the desired target net income.
(b) Phil 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.
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