Question

19, A restaurant has a food operation with a 30% variable cost and a bar operation with a 25% variable cost. The food operation produces 60% of total sales revenue and the bar 40%. If the restaurant wanted an extra $7,500 in operating income, by how much would sales revenue have to increase to provide this added profit? (a) $26,786 (b) $23,810 (c) $10,417 (d) $10,714 20. Sales revenue is $250,000, fixed costs are $90,000, profit is $50,000, and sales price per unit is $25.00. Variable cost per unit is (a) $11.00 (b) $15.00 (c) $20.00 (d) $25.00 21. If a company has an income of $5,000 (after depreciation but before income tax) during a particular month, its bank account should have increased by: (a) $5,000, plus depreciation, plus tax (b) $5,000, plus depreciation (c) $5,000, less income tax (d) Probably some amount other than any of the above 22. In cash budgeting, depreciation expense on the income statement is not shown as a cash disbursement on a cash budget because (a) One has a choice of depreciation methods (b) Depreciation is not really a business expense (c) The recording of depreciation expense does not require an outlay of cash (d) Depreciation is only shown as an expense to reduce cash outflow from tax 23. Sales revenue in Month 1 of a new restaurant is forecast to be $60,000 and in Month 2 $75,000. Cost of sales is estimated to be 30% of sales revenue, with half the cost paid for in the month of purchase, the other half in the following month. Month 2's cash disbursement for purchases is (a) $20,250 (b) $18,000 (c) $22,500 (d) $11,250 24. A bank lockbox is used to (a) Avoid having to use bank float (b) Avoid having to use concentration banking (c) Speed up payment of accounts payable (d) Speed up collection of accounts receivable

Answer 1

19.

Let the increase in sales required be $Y

Sale of food operation = 60% of Y

= 0.6Y

Variable cost of food operation = 30%

Hence, contribution margin of food operation = 70%

Contribution margin of food operation = 0.6Y x 70%

= $0.42Y

Sale of bar operation = 40% of Y

= 0.4Y

Variable cost of bar operation = 25%

Hence, contribution margin of bar operation = 75%

Contribution margin of bar operation = 0.4Y x 75%

= $0.3Y

Total contribution margin of food and bar operation = 0.42Y + 0.3Y

= 0.72Y

Increase in operating income = $7,500

Hence, 0.72Y = 7,500

Y = 7,500/0.72

= $10,417

Hence, increase in sales required = $10,417

Correct option is (c)

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