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
|
Other known costs will be: |
|
|
Management salary and wages |
$48,000 |
|
Insurance expense |
2,800 |
|
Advertising expense |
4,500 |
|
Utilities and telephone expense |
1,020 |
|
Rent expense |
12,000 |
|
Equipment depreciation expense |
20% |
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.