Problem 19-3A The Grand Inn is a restaurant in Flagstaff, Arizona. It specialize
ID: 2414595 • Letter: P
Question
Problem 19-3A The Grand Inn is a restaurant in Flagstaff, Arizona. It specializes in southwestern style meals in a moderate price range. Paul Weld, the manager of Grand, has determined that during the last 2 years the sales mix and contribution margin ratio of its offerings are as follows Percent of Total Sales Appetizers Main entrees Desserts Beverages 15% 50 % 10% 25 % Contribution Margin Ratio 70% 25 % 60 % 80 % Paul is considering a variety of options to try to improve the profitability of the restaurant. His goal is to generate a target net income of $119,000. The company has fixed costs of $1,391,000 per year Calculate the total restaurant sales and the sales of each product line that would be necessary to achieve the desired target net income. (Round intermediate calculations to 3 decimal places e.g. 0.251 and final answers to 0 decimal places, e.g. 2,510.) Total restaurant sales Sales from Each Product Appetizers Main entrees Desserts BeveragesExplanation / Answer
Answer to Question 1:
Appetizer Contribution Margin Ratio = 70%
Appetizer Variable Cost Ratio =100% - 70% = 30%
Appetizer % of Total Variable Cost = 15% * 30% = 4.5%
Main Entrees Contribution Margin Ratio = 25%
Main Entrees Variable Cost Ratio =100% - 25% = 75%
Main Entrees % of Total Variable Cost = 50% * 75% = 37.5%
Desserts Contribution Margin Ratio = 60%
Desserts Variable Cost Ratio =100% - 60% = 40%
Desserts % of Total Variable Cost = 10% * 40% = 4.0%
Beverages Contribution Margin Ratio = 80%
Beverages Variable Cost Ratio =100% - 80% = 20%
Beverages % of Total Variable Cost = 25% * 20% = 5.0%
Total Variable Cost as percentage of Sales = 4.5% + 37.5% + 4.0% + 5.0%
Total Variable Cost as percentage of Sales = 51%
Net Income = Sales - Variable Cost – Fixed Cost
Let the Sales be “$x”
$119,000 = $x – ($x * 0.51) - $1,391,000
$1,510,000 = $0.49x
x = $3081632.65 or $3,081,633
Total Restaurant Sales are $3,081,633
Sales from Appetizer = $3,081,633 * 15% = $462,255
Sales from Main Entrees = $3,081,633 * 50% = $1,540,817
Sales from Desserts = $3,081,633 * 10% = $308,163
Sales from Beverages = $3,081,633 * 25% = $770,408