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

Info icon This preview shows pages 1–6. Sign up to view the full content.

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
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

Chapter 8—Solutions to Problems 24x = $1,032 x = $43
Image of page 2
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%
Image of page 3

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

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
Image of page 4
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.
Image of page 5

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

Image of page 6
This is the end of the preview. Sign up to access the rest of the document.
  • Spring '13
  • AtulSheel
  • Chapter 8—Solutions, Turkey sandwich, Ham & Cheese

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern