COBU 202 Case Study Alonzo and Brenda Patterson live in Landsdale, Virginia. Two

Question

COBU 202 Case Study 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?

Sections: 1) Problem Identification a. ( In this section state the problem in one or two sentences)

2) Course of Action a. (In this section describe HOW you will set out to address solving the problem you just identified)

3) Data Analysis a. (In this section discuss how you analyzed the data that you were given to answer the questions.)

4) Recommendation a. (In this section discuss the recommendation you are making)

5) Conclusion a. (In this section discuss the conclusion(s) you arrived at as a result of your analysis)

Explanation / Answer

Since, there are multiple questions, the first four have been answered.

____________

Question 1)

The annual break even point in meals and sales values can be calculated with the use of following formula:

Annual Break Even Point (Meals) = Total Fixed Cost/(Revenue Per Meal - Cost Per Meal)

Annual Break Even Point (Sales Value) = Annual Break Even Point (Meals)*Revenue Per Meal

_________

Using the values provided in the question, we get,

Total Annual Fixed Cost = 5,400*12 + 4,500*12 + 900*12 + 400*12 + 3,300*12 = $174,000

Break Even Point (Meals) = 174,000/(55 - 20) = 4971.42 or 4971 meals

Break Even Point (Sales Value) = 4971*55 = $273,405

__________

Question 2)

The number of meals and sales value required to operating income of $85,200 can be calculated with the use of following formula:

Number of Meals for $85,200 Operating Income = (Fixed Cost + Desired Operating Income)/(Revenue Per Meal - Cost Per Meal)

Sales Value of Meals for $85,200 Operating Income = Number of Meals for $85,200 Operating Income*Revenue Per Meal

_________

Using the values provided in the question, we get,

Total Annual Fixed Cost = 5,400*12 + 4,500*12 + 900*12 + 400*12 + 3,300*12 = $174,000

Number of Meals for $85,200 Operating Income = (174,000 + 85,200)/(55 - 20) = 7405.71 or 7,406 meals

Sales Value of Meals for $85,200 Operating Income = 7,406*55 = $407,330

__________

Question 3)

The number of meals to be served each night for operating income of $85,200 is calculated as follows:

Number of Meals Each Week = Total Number of Meals for $85,200 Income/Number of Weeks Per Year = 7,406/50 = 148.12

Number of Meals Each Night for $85,200 Income = Number of Meals Each Week/Number of Days the Restaurant Will Serve Per Week = 148.12/5 = 29.62 or 30 meals

__________

Question 4)

The most important factor would be the possibility of selling 30 meals per night in order to achieve the target income of $85,200. They also need to consider the fact that the number of visitors may not be as desired during the weekdays(Tuesday to Friday). However, they might increase during weekends. Since, it would be the first year of operation, they should focus on achieving the break even quantity of 4,971 meals as with the passage of time, their restaurant will become popular and will attract more visitors.

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