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Compute number of meals needed to earn operating income

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Reference no: EM13325680

Problem:

While vacationing in Thailand, Steve and Linda fell in love with Thai food. Their hometown does not have a Thai restaurant, so Steve and Linda planned to open one. Linda is a chef and Steve would quit his job to run the "business" side of the restaurant. 

Steve found an empty restaurant for lease with seven tables that would seat four each. The restaurant would serve dinner only (no lunch) Tuesday - Saturday, and Linda is planning on having two seatings per evening. They will close two weeks a year for vacation.

The Thai loving couple have come up with the following estimates:

Average Revenue, including beverages and dessert        $    45 per meal

Average cost of food                               $    15 per meal

Chef's (Linda) and dishwasher's salaries                      $ 61,200 per year

Rent for building and equipment                            $  4,000 per month

Cleaning costs                                    $   800 per month

Replacement of dishes, glasses, etc.                   $   300 per month

Utilities, advertising, telephone                             $ 2,300 per month

Requirements:

  • Compute the annual breakeven number of meals and Sales Revenue for the restaurant:
  • Compute the number of meals needed to earn operating income of $75,600 to replace Steve's salary from his
  • How many meals must Steve and Linda serve each night to earn the target income of $75,600?
  • Should Steve and Linda open the restaurant? Explain why or why not.

Reference no: EM13325680

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