Managerial Accounting: Tools for Business Decision Making
7th Edition
ISBN: 9781118334331
Author: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
Publisher: WILEY
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Chapter 6, Problem 6.3AP
Determine break-even sales under alternative sales strategies and evaluate results.
(LO 2), AN
The Grand Inn is a restaurant in Flagstaff. Arizona. It specializes in southwestern style meals in a moderate price range. Paul Weld, the manager of Grand, has determined that during the last 2 years the sales mix and contribution margin ratio of its offerings are as follows.
| Percent of Total Sales | Contribution Margin Ratio | |
| Appetizers | 15% | 50% |
| Main entrees | 50% | 25% |
| Desserts | 10% | 50% |
| Beverages | 25% | 80% |
Paul is considering a variety of options to try to improve the profitability of the restaurant. His goal is to generate a target net income of $117.000. The company has fixed costs of $1,053,000 per. year.
Instructions
(a) Calculate the total restaurant sales and the sales of each product line that would be necessary to achieve the desired target net income.
(a) Total sales $2,600,000
(b) Total sales $3,375,000
(b) Paul believes the restaurant could greatly improve its profitability by reducing the complexity and selling price of its entrees to increase the number of clients that it serves. It would then more heavily market its appetizers and beverages. He is proposing to reduce the contribution margin ratio on the main entrees to 10% by dropping the average selling price. He envisions an expansion of the restaurant that would increase fixed costs by $585.000. At the same time, he is proposing to change the sales mix to the following.
| Percent of Total Sales | Contribution Margin Ratio | |
| Appetizers | 25% | 50% |
| Main entrees | 25% | 10% |
| Desserts | 10% | 50% |
| Beverages | 40% | 80% |
Compute the total restaurant sales, and the sales of each product line that would be necessary to achieve the desired target net income.
(c) Suppose that Paul reduces the selling price on entrees and increases fixed costs as proposed in part (b), but customers are not swayed by the marketing efforts and the sales mix remains what it was in part (a). Compute the total restaurant sales and the sales of each product line that would be necessary to achieve the desired target net income. Comment on the potential risks and benefits of this strategy.
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The Hillside Inn is a restaurant in Flagstaff, Arizona. It specializes in southwestern
style meals in a moderate price range. Phil Weld, the manager of Hillside, has determined
that during the last 2 years the sales mix and contribution margin ratio of its offerings are
as follows.
Percent of Contribution
Total Sales Margin Ratio
Appetizers 15% 50%
Main entrees 50% 25%
Desserts 10% 50%
Beverages 25% 80%
Phil is considering a variety of options to try to improve the profi tability of the…
The Grand Inn is a restaurant in Flagstaff, Arizona. It specializes in southwestern style meals in a moderate price range. Paul Weld, the manager of Grand, has determined that during the last 2 years the sales mix and contribution margin ratio of its offerings are as follows.
Percent ofTotal Sales
ContributionMargin Ratio
Appetizers
15
%
50
%
Main entrees
50
%
25
%
Desserts
10
%
50
%
Beverages
25
%
80
%
Paul is considering a variety of options to try to improve the profitability of the restaurant. His goal is to generate a target net income of $117,000. The company has fixed costs of $1,053,000 per year.
(a)
Calculate the total restaurant sales and the sales of each product line that would be necessary to achieve the desired target net income. (Round intermediate calculations to 3 decimal places e.g. 0.251 and final answers to 0 decimal places, e.g. 2,510.)
Total restaurant sales
$
Sales from Each Product…
As manager of the St. Cloud Theatre Company, you have decided that concession sales will support themselves. The following table provides the information you have been able to put together thus far:
Item
Selling Price
Variable Cost
% of Revenue
Soft Drink
$1.25
$0.65
26
Wine
$2.00
$0.90
24
Coffee
$1.50
$0.40
30
Candy
$1.20
$0.25
20
Last year's manager, Scott Ellis, has advised you to be sure to add 10% of variable cost as a waste allowance for all categories. You estimate labor cost to be
$250.00
(5 booths with 2 people each). Even if nothing is sold, your labor cost will be
$250.00,
so you decide to consider this a fixed cost. Booth rental, which is a contractual cost at
$60.00
for each booth per night, is also a fixed cost.
a) Based on the information available, the per night break-even point in…
Chapter 6 Solutions
Managerial Accounting: Tools for Business Decision Making
Ch. 6 - What is meant by CVP analysis?Ch. 6 - Provide three examples of management decisions...Ch. 6 - Prob. 3QCh. 6 - Describe the features of a CVP income statement...Ch. 6 - The traditional income statement for Wheat Company...Ch. 6 - Prob. 6QCh. 6 - What is meant by the term sales mix? How does...Ch. 6 - Prob. 8QCh. 6 - Prob. 9QCh. 6 - Prob. 10Q
Ch. 6 - What is the theory of constraints? Provide some...Ch. 6 - What is meant by "cost structure? Explain how a...Ch. 6 - What is operating leverage? How does a company...Ch. 6 - Prob. 14QCh. 6 - Prob. 15QCh. 6 - Prob. 16QCh. 6 - Distinguish between absorption costing and...Ch. 6 - Prob. 18QCh. 6 - Prob. 19QCh. 6 - Prob. 20QCh. 6 - Prob. 21QCh. 6 - Prob. 22QCh. 6 - Determine missing amounts for contribution margin....Ch. 6 - Hamby Inc. has sales of 2,000,000 for the first...Ch. 6 - Prob. 6.3BECh. 6 - Prob. 6.4BECh. 6 - Prob. 6.5BECh. 6 - Prob. 6.6BECh. 6 - NoFly Corporation sells three different models of...Ch. 6 - Information for NoFly Corporation is given in...Ch. 6 - Prob. 6.9BECh. 6 - Prob. 6.10BECh. 6 - In Marshall Company, data concerning two products...Ch. 6 - Prob. 6.12BECh. 6 - Prob. 6.13BECh. 6 - Prob. 6.14BECh. 6 - Prob. 6.15BECh. 6 - Compute product costs under variable costing. (LO...Ch. 6 - Compute product costs under absorption costing....Ch. 6 - Prob. 6.18BECh. 6 - Prob. 6.19BECh. 6 - Victoria Company reports the following operating...Ch. 6 - Prob. 6.2DICh. 6 - Zoom Corporation manufactures and sells three...Ch. 6 - Prob. 6.4DICh. 6 - Prob. 6.1ECh. 6 - In the month of June, Jose Heberts Beauty Salon...Ch. 6 - Compute net income under different alternatives....Ch. 6 - Prob. 6.4ECh. 6 - Prob. 6.5ECh. 6 - Yard Tools manufactures lawnmowers, weed-trimmers,...Ch. 6 - PDQ Repaint has 200 auto-maintenance service...Ch. 6 - Express Delivery is a rapidly growing delivery...Ch. 6 - Prob. 6.9ECh. 6 - Determine break-even point in dollars for two...Ch. 6 - Mars Company manufactures and sells three...Ch. 6 - Compute contribution margin and determine the...Ch. 6 - Helena Company manufactures and sells two...Ch. 6 - The CVP income statements shown below are...Ch. 6 - Casas Modernas of Juarez, Mexico, is contemplating...Ch. 6 - Prob. 6.16ECh. 6 - Compute product cost and prepare an income...Ch. 6 - Prob. 6.18ECh. 6 - Crate Express Co. produces wooden crates used for...Ch. 6 - Midlands Inc. had a bad year in 2016. For the...Ch. 6 - Lorge Corporation has collected the following...Ch. 6 - Determine break-even sales under alternative sales...Ch. 6 - Prob. 6.4APCh. 6 - The following CVP income statements are available...Ch. 6 - Bonita Beauty Corporation manufactures cosmetic...Ch. 6 - Prepare income statements under absorption costing...Ch. 6 - Dilithium Batteries is a division of Enterprise...Ch. 6 - CURRENT DESIGNS Current Designs manufactures two...Ch. 6 - Prob. 6.1BYPCh. 6 - Managerial Analysis For nearly 20 years,...Ch. 6 - Real-World Focus In a recent report, the Del Monte...Ch. 6 - The June 8, 2009, edition of the Wall Street...Ch. 6 - Prob. 6.6BYPCh. 6 - Ethics Case Brett Stem was hired during January...Ch. 6 - Prob. 6.9BYP
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