Homework Answers
Contribution margin %-->
Contribution = Gross profit - Variable expenses = 851900-222380 = $ 629520
Contribution margin % = Contribution / Revenue = 629520/2098400 = 30%
1.
| Dinner | Lunch | |
| Sale price p.u….(i) | 40 | 20 |
| Variable cost p.u….(i)-(ii) | -28 | -14 |
| Contribution p.u @30%..(ii) | 12 | 6 |
| Fixed expenses...(iii) | 170940 | 170940 |
| Break-even in units...(iii)/(ii) | 14245 | 28490 |
If only Dinners are to be sold, then 14245 dinners to be sold to break-even i.e. to cover Fixed costs
If only Lunches are to be sold, then 28490 lunches to be sold to break-even i.e. to cover Fixed costs
If both Dinner and Lunch are to be sold, then a total of 14245 meals to be sold to break-even.
2. In order to find whether annual expenditure to be undertaken or not, we will find incremental revenue and compare with additional cost of $15000.
| 3 dinners | 6 lunches | Total | |
| Sales...(A) | 36600 | 36600 | 73200 |
| Calculation | 40$ * 3 * 305 days | 20$ * 6 * 305 days | |
| Contribution margin (30% of Sales..(A)) | 10980 | 10980 | 21960 |
Since the contribution is more than additional cost of $15000, which results in excess of $6960, annual advertising expenditure to be undertaken.
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