Screen Shot 2019-09-19 at 2.43.53 PM.png - 3-27 CVP analysis income taxes The Home Style Eats has two restaurants that are open 24 hours a day Fixed

# Screen Shot 2019-09-19 at 2.43.53 PM.png - 3-27 CVP...

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Unformatted text preview: 3-27 CVP analysis, income taxes. The Home Style Eats has two restaurants that are open 24 hours a day. Fixed costs for the two restaurants together total \$430,500 per year. Service varies from a cup of coffee to full meals. The average sales check per customer is \$8.75. The average cost of food and other variable costs for each customer is \$3.50. The income tax rate is 36%. Target net income is \$117,600. Required: 1. Compute the revenues needed to earn the target net income. 2. How many customers are needed to break even? To earn net income of \$117,600? 3. Compute net income if the number of customers is 170,000. SOLUTION (20-25 min.) CVP analysis, income taxes. 1. Variable cost percentage is \$3.50 + \$8.75 = 40% Let R = Revenues needed to obtain target net income R -0.40R - \$430,500 = 0.60R = \$430,500 + \$183,750 R = \$614,250 + 0.60 R = \$1,023,750 or, Proof: Revenues \$1,023,750 Variable costs (at 40%) 409,500 Contribution margin 614,250 Fixed costs 430,500 Operating income 183,750 Income taxes (at 36%) 66,150 Net income \$ 117,600 O You have...
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