OU#2 Sandwich Ltd prepares meals for sale 24 hours a day. Fixed cost for the res
ID: 2559561 • Letter: O
Question
OU#2 Sandwich Ltd prepares meals for sale 24 hours a day. Fixed cost for the restaurant is S450000 per year. On average the sales check per customer is $8.00. The average cost of food and other variable costs is $3.20 per customer. The income tax rate is 30%. Target net income is $105000 a) What revenues are needed to earn the target net income?-- (7 marks) b) How many customers are needed to breakeven? To earn net income of $105000? (10 marks) c) What is the net income if the number of customers is 150000? (8 marks)Explanation / Answer
Contribution per unit = (Sales – Variable cost) per unit
= $8 - $3.2
Contribution per unit = $4.8
Let no. of unit to be sold = x
Contribution = 4.8x
Contribution – Fixed Cost = Net Income
4.8x - $450,000 = $105,000
4.8x = $555,000
X = 115,625 Units
Revenue = 115,625 Units * $8
= $925,000
Company will need $925,000 sales to earn profit of $105,000
Company will need 115,625 Customers to earn a net profit of $105,000
= $450,000 / $4.8
= 93,750 Units
Breakeven point = 93,750 Units
Answered in (a) part
I.e. Company will need 115,625 Customers to earn a net profit of $105,000
= (150,000 * $4.8) - $450,000
Net Income = $270,000
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