Question

The Grand Inn is a restaurant in Flagstaff, Arizona. It specializes in southwestern style meals in a moderate price range. Paul Weld, the manager of Grand, has determined that during the last 2 years the sales mix and contribution margin ratio of its offerings are as follows.

		Percent of Total Sales			Contribution Margin Ratio
Appetizers		15	%		70	%
Main entrees		50	%		25	%
Desserts		10	%		70	%
Beverages		25	%		80	%

Paul is considering a variety of options to try to improve the profitability of the restaurant. His goal is to generate a target net income of $117,000. The company has fixed costs of $1,343,000 per year.

Calculate the total restaurant sales and the sales of each product line that would be necessary to achieve the desired target net income. (Round intermediate calculations to 3 decimal places e.g. 0.251 and final answers to 0 decimal places, e.g. 2,510.) Total restaurant sales $ Sales from Each Product Appetizers $ Main entrees $ Desserts th ी ी Beverages

Answer 1

Solution for first Question

Computation of Total Sales = ( Target Income + Fixed Cost)/ Weighted Average CM Ratio

=(117000+1343000)/50%= $2920000

Working Note:
Computation of Weighted average Contribution Margin Ratio
Item	Percent of Sales	CM Ratio	Weighted Average CMRatio
Appetizers	15%	70%	10.500%
Main entrees	50%	25%	12.500%
Desserts	10%	70%	7.000%
Beverages	25%	80%	20.000%
Total			50.000%

	Percent of sales	Sales from Each Product
Appetizers	15%	$438,000.00
Main entrees	50%	$1,460,000.00
Desserts	10%	$292,000.00
Beverages	25%	$730,000.00
Total		$2,920,000.00

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