Reference no: EM132630322

Question - Mr Y has developed a new technique for BEST BURGER and plans to open a take-out restaurant in Las Vegas City. His brother has agreed to invest $500,000 in the operation provided Mr Y can convince him that profits will be at least 20 percent of sales revenues. Mr Y estimated that total fixed expenses would be $24,000 per year and that variable expenses would be approximately 40 percent of sales revenue.

Required -

a. How much sales revenue must be earned to produce profits equal to 20 percent of sales revenue? compute the contribution income statement to verify your answer.

b. If Mr Y plans on selling 12-piece buckets of chicken for $10 each, how many buckets must he sell to earn a profit equal to 20 percent of sales? Twenty-five percent of sales? compute contribution income statement to verify the second answer.

c. Suppose Mr Y's brother meant that the after-tax profit had to be 20 percent of sales revenue. Under this assumption, how much sales revenue must be generated by Y's chicken business? (Assume that the tax rate is 40 percent.)