Alonzo and Brenda Patterson live in Landsdale, Virginia. Two years ago, they vis

Question

Alonzo and Brenda Patterson live in Landsdale, Virginia. Two years ago, they visited Thailand. Brenda, a professional chef, was impressed with the cooking methods and the spices used in Thai food. Landsdale does not have a Thai restaurant, and the Patterson’s are contemplating opening one. Linda would supervise the cooking, and Alonzo would leave his current job to be the maître d’. The restaurant would serve dinner Tuesday through Saturday. Alonzo noticed a restaurant for lease. The restaurant has eight tables, each of which can seat four patrons. Tables can be moved together for a large party. Brenda is planning two (2) seatings per evening, and the restaurant will be open 50 weeks per year. The Patterson’s have drawn up the following estimates:

Average revenue, including beverages and desserts $ 55 per meal

Average cost of food $ 20 per meal

Chef’s and dishwasher’s salaries $ 5,400 per month

Rent (premises and equipment) $ 4,500 per month

Cleaning (linen, premises) $ 900 per month

Replacement of dishes, cutlery, glasses $ 400 per month

Utilities, advertising, telephone $ 3,300 per month

Questions

1. Compute the annual breakeven number of meals and sales revenue for the restaurant.

2. Compute the number of meals and the amount of sales revenue needed to earn operating income of $85,200 for the year.

3. How many meals must the Patterson’s serve each night to earn their target profit of $85,200?

4. What factors should the Patterson’s consider before they make their decision as to whether to open the restaurant of not?

5. What recommendations would you make to the Patterson’s if they desire to tap into the growing diverse and international population of Landsdale to expand their potential customer base?

Explanation / Answer

Monthly fixed expenses :

Chef’s and dishwasher’s salaries $ 5,400 per month

Rent (premises and equipment) $ 4,500 per month

Cleaning (linen, premises) $ 900 per month

Replacement of dishes, cutlery, glasses $ 400 per month

Utilities, advertising, telephone $ 3,300 per month

Total $14500

Contribution per meal = $55 - $20 = $35 per meal

1. Break even point = $14500 * 12 / 35 = 4972 meals per annum

Revenue at the Break even point = 4972 * 55 = $273460 per annum

2. the number of meals and the amount of sales revenue needed to earn operating income of $85,200 for the year = The fixed elements against the contribution is = $14500 * 12 + $85200 = $259200

The number of meals to have operating income of $85200 = $259200 / $35 = 7406 meals per annum

Sales revenue to have operating income of $85200 = 7406 * 55 = $407330 per annum

3. Number of meals the Patterson’s must serve each night to earn their target profit of $85,200 = 7406 / (50*5) = 30 meals per night out of scheduled 32 meals per night.

4. Patterson’s should consider following factors before they make their decision as to whether to open the restaurant or not :

a) Community to which they wants to cater whether high or medium class and at what level - whether domestic and international.

b) Availability of the working staff.

c) Viability of the restaurant business and availability of the fund to initiate the business.

d) Infrastructure required for the restaurant.

e) Fixing of per meal revenue and making the budgets and income margin.

5. If the Patterson desire to tap into the growing diverse and international population of Landsdale to expand their potential customer base, our recommendations are as under:

i) Should poses the capability of the getting in the international restaurant market.

ii) Should make sure that international community must accept them.

iii) Do not have high competition with the local players.

iv) Availability of restaurant staff in the international market.

v) Level of revenue could be charged in the international market which will provide a reasonable income for growth.

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