Chapter 8 - Problem Solutions (3)

# Chapter 8 - Problem Solutions (3) - Chapter 8Solutions to...

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Chapter 8—Solutions to Problems Problem 1: Solution Monthly fixed costs = \$40,000 Variable cost % = 60% Owner's equity = \$240,000 Desired ROI = 20% (\$48,000) Average tax rate = 30% 1. Monthly breakeven sales: Breakeven sales = Fixed costs ÷ CMR CMR = 1 - VC% = 40% = \$100,000 2. Monthly revenues when desired profit earned: Monthly desired net income = Owner's Equity × ROI × (1/12) = \$240,000 × 20% × (1/12) = \$4,000 Pretax income = Net income ÷ (1 - tax rate) = \$4,000 ÷ (1 - .3) = \$5,714 Required revenue = (Pretax income + FC) ÷ CMR; CMR = 1 - VC% = (\$5,714 + \$40,000) ÷ (1 - .6) = \$114,285.71 3. Average food service check: Seats available = 100 Seat turnover = 2 Days open = 24 Estimated meals = 4800 Required revenue = \$114,285.71 Average check = required monthly revenue ÷ estimated meals = \$114,285.71 ÷ 4,800 = \$23.81 Problem 2: Solution ADR = \$48 Rooms sold per night = 24 Total daily revenue = \$1,152 Room Rates for Assumed Sales Mix ADR Dbls. vs. Sgls. Singles Doubles Singles Doubles 1. +\$10 12 12 \$43 \$53 2. +\$20 8 16 \$34.67 \$54.67 3. 10% higher 10 14 \$45.35 \$49.89 4. 30% higher 12 12 \$41.74 \$54.26 1. Let x = room rate 12x + 12(x + 10) = \$1,152 12x + 12x + 120 = \$1,152

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Chapter 8—Solutions to Problems 24x = \$1,032 x = \$43
Chapter 8—Solutions to Problems Problem 2: Solution (continued) 2. Let x = room rate 8x + 16(x + 20) = \$1,152 8x + 16x + \$320 = \$1,152 24x = \$832 x = \$34.67 3. Let x = room rate 10x + 14(1.1x) = \$1,152 10x + 15.4x = \$1,152 25.4x = \$1,152 x = \$45.35 4. Let x = room rate 12x + 12(1.3x) = \$1,152 12x + 15.6x = \$1,152 27.6x = \$1,152 x = \$41.74 Problem 3: Solution Rack rate = \$80 Marginal cost per room = \$15 Paid Occ. % = 80% Rooms = 100 1. Daily room revenue Rooms × Occ % × Rack Rate = \$6,400 2. Daily Room Contribution Margin (Rooms × Occ % × Rack Rate) - (Rooms × Occ % × Marginal Cost) = \$5,200 3. Equivalent Room Occupancy ERO = Current Occ% × ((Rack Rate - Marginal Cost) ÷ (Rack Rate × (1 - Discount Rate) - Marginal Cost)) = 80% × ((\$80 - \$15) ÷ (\$80 × (1 - 10%)- \$15)) = 91.23 % Problem 4: Solution 1. ERO = Current occ. % × (current CM ÷ revised CM) = .60 × (\$60 ÷ \$50) = 72% 2. ERO = .6 × (\$60 ÷ \$52) = 69.23%

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Chapter 8—Solutions to Problems Problem 5: Solution 1 2 Net income desired = \$10,000 \$15,000 Fixed costs = \$30,000 \$40,000 Seats available = 100 100 Avg. tax rate = 25% 25% Variable cost % = 60% 60% Seat turnover per month = 30 40 1. Avg. food service cover: Pretax income = \$10,000 ÷.75 = \$13,333 Required revenue = (Pretax income + FC) ÷ CMR = (\$13,333 + \$30,000) ÷ .4 = \$108,333 \$108,333 = Seats available × seat turnover × avg. check \$108,333 = 100 × 30 × Avg. check Avg. check = \$36.11 2. Avg. food service cover: Pretax income = \$15,000 ÷ .75 = \$20,000 Required revenue = (Pretax income + FC) ÷ CMR = (\$20,000 + \$40,000) ÷ .4 = \$150,000 \$150,000 = Seats available × seat turnover × avg. check \$150,000 = 100 × 40 × avg. check Avg. check = \$37.50 Problem 6: Solution Investment = \$500,000 Variable Cost % = 60% Monthly Fixed Costs = \$30,000 Monthly Covers = 10,000 Average Tax Rate = 20% 1. Average food service check to break even: Breakeven = FC ÷ CMR = 30,000 ÷ .4 = \$75,000 \$75,000 = Covers × avg. check \$75,000 = 10,000 × avg. check Avg. check = \$7.50 2. Average food service check for a profit of \$5,000: Revenue = (Pretax income + FC) ÷ CMR Pretax income = \$5,000 ÷ .8 =\$6,250 Revenue = (\$6,250 + \$30,000) ÷ .4 = \$90,625 \$90,625 = Covers × avg. check \$90,625 = 10,000 × avg. check Avg. check = \$9.06
Chapter 8—Solutions to Problems Problem 7: Solution 1. Average check: Calculations Net income \$ 40,000 \$200,000 × .2 = \$40,000 Pretax income 47,059 \$40,000 ÷ (1 - .15) = \$47,059 Interest exp. 16,000 \$200,000 × .08 = \$16,000 Annual FC 284,000 Total \$347,059 Total variable costs = 72%. Therefore, the 347,059 of total fixed costs, interest, and pretax profit is 28% of the required revenue.

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• Spring '13
• AtulSheel
• Chapter 8—Solutions, Turkey sandwich, Ham & Cheese

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