Session 6 Exercises.docx - Chapter 6 Cost Approaches to Pricing Problem 1 Lily Anderson owner of the 100-seat Lake View Restaurant provides you with

# Session 6 Exercises.docx - Chapter 6 Cost Approaches to...

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Chapter 6 : Cost Approaches to Pricing Problem 1: Lily Anderson, owner of the 100-seat Lake View Restaurant, provides you with cost and other information as follows: Average check Monthly fixed costs \$40,000 Variable cost 60% Owner’s equity \$240,000 Desired ROI (yearly rate) 20% Average tax 30% Required: 1) Compute monthly breakeven sales. Sales 100% =fixed cost/ contribution margin( \$40,000 / 40%) = \$100,000 -VC 60% CM 40% -FC \$40,000 NP 2) What are the monthly sales when the desired profits are made? \$240,000 x 20% = \$48,000 \$48,000 / 12 months = \$4,000 \$4,000 / (1-30%) = \$5,714.29 Sales 100% = ( \$5,714.29 + \$40,000) / 40% = \$114,285.73 -VC 60% CM 40% -FC \$40,000 Taxable Profit \$4,000 -Tax 30% NP \$5,714.29
3) What is the average food check to reach the desired profit in 2), assuming the seat turnover rate is 2 and the restaurant opened 24 days in February? Revenue/ #of seats x 2 x days open 100 seats x 2 x 24 days Average check 2 x 100 seats = 200 customers 200 customers x 24 days = 4,800 customers \$114,285.73 / 4,800 customers = \$23.81 Problem 2: Jack Lumber is to build a 50-room lodging facility in Bouveret. To ensure a successful business, Jack has provided the following information: 1) Owner’s investment: \$1,000,000 with a ROI of 15% \$1,000,000 x 15% = \$150,000 2)

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