Problem:
A restaurant is being planned that will require an investment of $150,000 in equipment by the owner. The following shows forecasted variable cost percentages, identifiable fixed, and semifixed costs.
Variable costs will be:
Food cost is 40% of sales revenue
Wage cost is 25% of sales revenue
Other variable costs are 10% of sales revenue
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Other known costs will be:
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Management salary and wages
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$48,000
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Insurance expense
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2,800
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Advertising expense
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4,500
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Utilities and telephone expense
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1,020
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Rent expense
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12,000
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Equipment depreciation expense
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20%
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a. What is the breakeven level of sales revenue for the restaurant? Prepare a contribution margin income statement to confirm the breakeven calculations.
b. What required sales revenue is needed if the owner wants a 15 percent before-tax return on investment? Prepare a contribution margin income statement to confirm the CVP calculations.