Reference no: EM133059922

Question 1 - Canadue Steaks is a restaurant that only serves steak dinners. The contribution margin for the month of July is presented below.

Sales: $18,000

Variable Costs: 9,900

Contribution Margin: 8,100

Fixed Costs: 4,500

Operating Profit: $3,600

The supporting documents reveal that 600 dinners were sold during the month.

a) Determine the degree of operating leverage.

b) What is the percent change in operating profit if the number of steak dinners sold in August increases to 720 dinners? (Use the degree of operating leverage in your answer)

c) If sales volume increases to 720 dinners in August, how much operating profit should Canadue expect?

Question 2 - Bliss Company wants to open a new spa in a nearby plaza. Bliss Company will be offering half-day spa treatments for $150 each. Variable costs (not including the leasing costs below) are $95 for every treatment.

In terms of lease payments, the plaza has provided the company with three options:

i) $25 per treatment given

ii) $20,000 per month

iii) $15,000 per month and $10 per treatment given

a) Calculate the monthly operating profit for each of the three options if 300 treatments are given and if 700 treatments are given.

Option i)

Option ii)

Option iii)

b) At a level of 700 treatments, which option should be recommended?

c) Calculate the degree of operating leverage for the second lease option if Bliss Company gives 700 treatments.