Sandwich Ltd prepares meals for sale 24 hours a day. Fixed cost for the restaura

Question

Sandwich Ltd prepares meals for sale 24 hours a day. Fixed cost for the restaurant is $450000 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 e) What is the net income if the number of customers is 150000 (8 marks)

Explanation / Answer

a) Contribution margin per customer = Sales - Variable cost = 8 - 3.20 = 4.80

Target income = 105000

Fixed cost = 450000

Number of customers needed for target income = (105000 + 450000)/4.80 = 115625

Revenued needed to earn target net income = 115625*8 = 925000

b) Number of customers needed for break even = Fixed cost/Contribution margin per customer = 450000/4.80 = 93750

Number of customers needed for target income 0f 105000 = (105000 + 450000)/4.80 = 115625

c) Net income if customers is 150000 = Contribution margin per customer*Number of customers - Fixed cost

= 4.80*150000 - 450000 = 720000 - 450000 = 270000

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