Reference no: EM133207253
Capital City Hotel's restaurant is open for breakfast, lunch and dinner. The accountants prepared a segmented contribution margin income statement for the past year based on the three meal periods as shown below. The manager is concerned with the lunch period, as it has been showing a loss for the past few years.
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Capital City Hotel - Restaurant
Segmented Contribution Margin Income Statement
For the Year Ended December 31, 2020
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Breakfast
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Lunch
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Dinner
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Total
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Revenue
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$633,000
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$664,000
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$472,000
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$1,769,000
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Variable Costs
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$202,000
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$212,000
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$267,000
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$681,000
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Contribution Margin
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$431,000
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$452,000
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$205,000
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$1,088,000
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Fixed Costs
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$374,000
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$509,000
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$141,000
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$1,024,000
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Income from Operations
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$57,000
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$-57,000
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$64,000
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$64,000
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Recommend whether management should keep or drop the lunch period service based on the following independent scenarios.
Do not enter dollar signs or commas in the input boxes.
Use the negative sign for a decrease in income.
Indicate keep or drop using the drop-down lists.
a) Assume that all the fixed costs relating to the lunch service would remain with the company if it stopped serving lunch.
Change in Income from Operations: $Answer
Capital City Hotel should Answerdropkeep lunch
b) Assume that all the fixed costs relating to lunch service would no longer be incurred by the company if it stopped serving lunch.
Change in Income from Operations: $Answer
Capital City Hotel should Answerdropkeep lunch
c) Assume that only 30% of the fixed costs relating to lunch service would remain if the company stopped serving lunch.
Change in Income from Operations: $Answer
Capital City Hotel should Answerdropkeep lunch