Required: 1) Computw the contribution margin ratio for the food department 2) Co

Question

Required:

1) Computw the contribution margin ratio for the food department

2) Compute the BI's weighted average CMR

3) Compute the BI's breakeven point

4) If the BI wants to make $2,000,000 of net imcome, what must its room sales equal?

5) If the Bi desires a pretax cash flow of $500,000 what must its total revenu equal? assume its debt reduction payments total $500,000 for the year. Also it would liek to pay $250,000 in cash dividends during the year

6) The food department manager has proposed running an ad in the local paper to get more business.Assume the display ad will cost $500. How many meals must be sold to make $300 pretax profit. Average meal sells for $12.00

The condensed income statement of the Baker Inn (BI) is as follows: Revenue Variable Costs Fixed Costs $5,000,000 3,000,000 500,000 $1,000,000 1,000,000 200,000 $500,000 1,000,000 100,000 Rooms Food Other (Profit Center) Total department income Other variable expenses* Other fixed expenses** Pretax income Income taxes Net income Departmental Income $3,500,000 1,000,000 200,000 4,700,000 850,000 2,000,000 1,850,000 500,000 $1,350,000 * 10°7% of total vevenue **1,000,000 depreciation Daired.

Explanation / Answer

1 contribution margin ratio for the food department Amount in $ revenue from Food department 30,00,000 less: variable costs 10,00,000 Contribution 20,00,000 Contribution margin ratio = Contribution Margin / Sales   *100 =$2000,000/$3000,000   *100 =66.67% 2 Weighted Contribution margin Rooms Food other Total revenue 5000000 3000000 500000 8500000 less: variable cost 10,00,000 10,00,000 200000 Contribution margin 40,00,000 20,00,000 3,00,000 Contributio margin persentage(Contribution/sales) 80.00% 66.67% 60.00% Wights of Sales 58.82% 35.29% 5.88% 5000,0000/8500,000 3000,0000/8500,000 500,0000/8500,000 Weighted Contribution margin (Contribution*Weight) =80%*58.82% + 66.67%*35.29%   +60%*5.88%    =74.12% 3 BI   Break even point Break even Point in Sales = Fixed costs /Contribution margin ratio =$16,00,000/74.12% =$2,158,662 4 if Bi wants to make $2000,000 of net income , what is the room sales equal Fixed cost for room Sales =$500,000 Required Profit =$2000,000 Contribution margin ratio for room sales =80% Room Sales = (Fixed cost +required profit)   /Contribution margin ratio Required room Room sales = ($500,000+$2000,000) /80% =$3,125,000

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