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Question - CVP Analysis with Target Profits Tom Flannery has developed a new recipe for grilled fish and plans to open a take-away restaurant in Brisbane. His father-in-law has agreed to invest $500,000 in the operation provided Tom can convince him that profits will be at least 20 percent of sales revenues. Tom estimated that total fixed expense would be $24,000 per year and that variable expense would be approximately 40 percent of sales revenues.
Required:
1. How much sales revenue must be earned to produce profits equal to 20 percent of sales revenue? Prepare a contribution profit and loss statement to verify your answer.
2. If Tom plans on selling a 12-piece box of fish for $10 each, how many boxes must he sell to earn a profit equal to 20 percent of sales? 25 percent of sales?
3. Suppose Tom's father-in-law 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 Tom's business? (Assume that the tax rate is 40 percent.
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