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.
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.
(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
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
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- Fall '13