Assessment 1 Part 2 – CVP Analysis

You are assisting management consider different cost and pricing strategies. Consider

the following data and report to management your findings.

1. The cocktail bar in the Le Cordon Bleu hotel currently has sales revenue of

$650,000.00 per year. Beverage costs amount to 40% and other variable costs at

this level of revenue amount to 10%. Fixed costs are $170,000pa.

You are required to show all relevant formula and calculations using a professional

layout as explained during class tutorial sessions. Use Excel and use whole

numbers. Percentages where shown should be 1 decimal place ie xx.x%.

Please read the questions and information carefully.

1.1 What is the annual net profit (before tax)? (4)

1.2 The owner wants to increase the manager’s salary by $12,000 per year.

What is the new sales revenue needed to provide this additional salary and

maintain the current level of net profit? Show the equation you used to arrive at this

answer. (2)

(Any added sales revenue will come from increasing seat turnover by

improving/increasing the efficiency of customer service).

1.3 Instead of increasing sales revenue by increasing seat turnover and customer

service, the owner decides to increase menu prices by 5%.

The owner believes the price increase can be made without losing any customers

and without increasing the cost of sales or other variable costs. The original variable

cost dollar values and the manager’s salary increase still apply. Hint calculate the

new SR based on the original Sale Revenue.

Show the new VC%’s.

What will the bar’s net profit (before tax) be? (4)

Hospitality Financial Management (HFM)

2 © Le Cordon Bleu, Ryde

2. The restaurant in the Le Cordon Bleu hotel currently has a cover sale price of $65

with a variable unit cost of $21, Fixed costs are $80,000.

The owner wants to increase the manager’s salary by $12,000.00 per year.

2.1) Calculate the total number of covers to BE and meet the managers salary

increase. (3)

2.2) The owner has also been advised by his supplier, the cost of raw materials is

about to increase by 2.6%.

Calculate the number of covers for the increased salary and increased costs.

Show the new VCu, CMu in $xx.cc (3)

2.3) How many more covers are required to meet the increased Variable Cost

increase? (2)

3) Using this data, create a table and then use the graphical method of analysis to

display:

Units sold in 1000 increments,

Total Sales Revenue,

Fixed Costs,

Variable Costs,

Total Costs

Answered 19 days AfterNov 11, 2017Swinburne University of Technology

Answer 1.1:

Sales revenue

650000

100.00%

Variable costs - Beverages

260000

40.00%

Other variable costs

65000

10.00%

Total variable costs

325000

50.00%

Contribution margin

325000

Fixed cost

170000

Profit before tax

155000

Answer 1.2:

Sales revenue to have the profit of $155000

Expected sales =

(Fixed cost + target profit) / CM ratio

=

(170000+12000)/(40%+10%)

=

364000

Answer 1.3:

Old

New

Sales revenue

650000

100.00%

682500

100.00%

Variable costs - Beverages

260000

40.00%

260000

38.10%

Other variable costs

65000

10.00%

65000

9.52%

Total variable costs

325000

50.00%

325000

47.62%

Contribution margin

325000

357500

Fixed cost

170000

182000

Profit before...

Sales revenue

650000

100.00%

Variable costs - Beverages

260000

40.00%

Other variable costs

65000

10.00%

Total variable costs

325000

50.00%

Contribution margin

325000

Fixed cost

170000

Profit before tax

155000

Answer 1.2:

Sales revenue to have the profit of $155000

Expected sales =

(Fixed cost + target profit) / CM ratio

=

(170000+12000)/(40%+10%)

=

364000

Answer 1.3:

Old

New

Sales revenue

650000

100.00%

682500

100.00%

Variable costs - Beverages

260000

40.00%

260000

38.10%

Other variable costs

65000

10.00%

65000

9.52%

Total variable costs

325000

50.00%

325000

47.62%

Contribution margin

325000

357500

Fixed cost

170000

182000

Profit before...

SOLUTION.PDF## Answer To This Question Is Available To Download

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