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

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

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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: Monthly fixed costs \$40,000 Variable cost 60% Owner’s equity \$240,000 Desired ROI 20% Average tax 30% Required: 1) Compute monthly breakeven sales. Breakeven sales=\$40,000+sales*60% Breakeven sales=\$100,000 CMR=40% \$40,000/0.4=\$100,000 2) What are the monthly sales when the desired profits are made? Sales 114,285.714 -VC 60% CM 40% \$45,714.29 FC \$40,000 EBT \$4,000/70%=5,714.29 -Tax 30% NP \$4,000 ROI 20% \$240,000*20%=\$48,000/12months=\$4,000 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? \$114,285.714/24days*100seats*2=\$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% N.P.=\$150,000 2) Initial costs: \$400,000 in land, \$2,000,000 in building and \$1,000,000 in equipment Initial costs=\$3,400,000 3) The rest of the initial costs will be borrowed from the national bank with an interest rate of 8% 8%*(\$3,400,000-\$1,000,000) =\$192,000

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• Spring '20
• Lake View Restaurant
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