P6.6 An owner invested $180,000 in a new family-style restaurant, of which$160,000 was immediately used to purchase equipment and $20,000 wasretained for working cash. Estimates for the first year of business are asfollows:Menu selling prices to be established to give a markup of 150% overcost of food soldVariable wages, 28% of sales revenueI Fixed wages, $51,6001 Other variable costs, 7% of sales revenueI Rent, $36,000I Insurance, $4,800Depreciation on equipment, 20%Return on investment desired, 12%Income tax rate, 30%The restaurant has 60 seats and is open 5 days a week for lunch anddinner only. Lunch sales revenue is expected to be 40% of total volumewith 2 seat turnovers. Dinner revenue will be 60% of total volume, with1.25 turnovers.Calculate the average check per meal period that will cover all costs,including desired return on investment.

Working notes: Return on investment ($180,000 x 12%) 21600 total revenue ($180,000 x 112%)…

Answered: P6.6 An owner invested $180,000 in a…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Engberg Company installs lawn sod in home yards. The company's most recent monthly contribution format income statement follows: Amount Percent of Sales Sales $ 86,000 100% Variable expenses 34,400 40% Contribution margin 51,600 60% Fixed expenses 40, 420 Net operating income $ 11,180 Required: 1. What is the company's degree of operating leverage? 2. Using the degree of operating leverage, estimate the impact on net operating income of a 7% increase in unit sales. 3. Construct a new contribution format income statement for the company assuming a 7% increase in unit sales.
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