Question 4. A fast-food restaurant features only three items on its menu with th
ID: 2444826 • Letter: Q
Question
Question 4.
A fast-food restaurant features only three items on its menu with the following cost and selling prices:
Item
Cost
Selling Prices
1
$2.20
$6.80
2
$3.25
$8.80
3
$3.75
$9.85
For each item (Items 1, 2, and 3), calculate the food cost percentage and then complete a through d listed below:
(a) If 50 of each item are sold each day, what will be the standard food cost percentage be?
(b) What is the contribution margin in dollars?
(c) If only 25 each of items 1 and 3 sold and 100 of Item 2, what effect will this have on the standard cost percentages? What is the contribution margin in dollars?
(d) Comment on the results of this analysis.
Item
Cost
Selling Prices
1
$2.20
$6.80
2
$3.25
$8.80
3
$3.75
$9.85
Explanation / Answer
Food Cost Percentage Item Selling Price Cost Cost % 1 6.8 2.2 32.35294 2 8.8 3.25 36.93182 3 9.85 3.75 38.07107 a) if 50 Items are sold each day Item Selling Price of 50 Items Cost of 50 Items Cost % 1 340 110 32.35294 2 440 162.5 36.93182 3 492.5 187.5 38.07107 b)Contribution Margin in $ Item Selling Price Cost Contribution Contr for 50 Items 1 6.8 2.2 4.6 230 2 8.8 3.25 5.55 277.5 3 9.85 3.75 6.1 305 (c) If only 25 each of items 1 and 3 sold and 100 of Item 2, what effect will this have on the standard cost percentages? What is the contribution margin in dollars? Item No. of Items Sold Selling Price Cost Contribution Cost% 1 25 6.8 2.2 115 32.35294 2 100 8.8 3.25 555 36.93182 3 25 9.85 3.75 152.5 38.07107 d) Analysis: Since costs are variable with units sold, there will be no change in cost percentages with no. of units sold, Similarly the contribution per unit will remain the same In B we can see that contribution for Item C is the highest, thus selling more of it, would be profitable, followed by Item B and then A.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.