Reference no: EM131714454

Question - Steve and Linda Hom live in Bartlesville, Oklahoma. Two years ago, they visited Thailand. Linda, a professional chef, was impressed with the cooking methods and the spices used in Thai food. Bartlesville does not have a Thai restaurant, and the Horns are contemplating opening one. Linda would supervise the cooking, and Steve would leave his current job to be the maitre d'. The restaurant would serve dinner Tuesday through Saturday.

Steve has noticed a restaurant for lease. The restaurant has seven tables, each of which can seat four. Tables can be moved together for a large party. Linda is planning two seatings per evening, and the restaurant will be open 50 weeks per year.

The Horns have drawn up the following estimates:

Average revenue, including beverages and desserts - $45 per meal

Average cost of food - 15 per meal

Chef's and dishwashers salaries - 5,100 per month

Rent (premises, equipment) - 4,000 per month

Cleaning (linen, premises) - 800 per month

Replacement of dishes, cutlery, glasses - 300 per month

Utilities, advertising, telephone - 2,300 per month

Requirements

1. Compute the annual breakeven number of meals and sales revenue for the restaurant.

2. Compute the number of meals and the amount of sales revenue needed to earn operating income of $75,600 for the year.

3. How many meals must the Horns serve each night to earn their target profit of $75,600?

4. What factors should the Horns consider before they make their decision as to whether to open the restaurant?