Tariq has invested $180,000 in a new Moroccan and Mediterranean family-style restaurant, of which...

Question

Tariq has invested $180,000 in a new Moroccan and Mediterranean family-style restaurant, of which $160,000 was immediately used to purchase equipment and $20,000 was retained for working cash. Estimates for the first year of business are as follows:

Menu selling prices to be established to give a markup of 150% over cost of food sold
Variable wages, 28% of sales revenue
Fixed wages, $51,600
Other variable costs, 7% of sales revenue
Rent, $36,000
Insurance, $4,800
Depreciation on equipment, 20%
Return on investment desired, 12%
Income tax rate, 30%

Tariq’s restaurant has 60 seats and is open 5 days a week for lunch and dinner only. Lunch sales revenue is expected to be 40% of total volume with 2 seat turnovers. Dinner revenue will be 60% of total volume, with 1.25 turnovers.

Tariq must calculate the average check per meal period that will cover all costs, including desired return on investment. He’s done the calculation himself, but reached out to two classmates, Renald and Angela, to confirm his numbers. What is the average check per meal period that Tariq’s restaurant must achieve to cover all costs, and the desired return on investment?

David · Accepted Answer

Let Sales revenue be X 
     
      VARIABLE COSTS 
     Wages 0.28 X 
   Others 0.07 X 
   TOTAL 0.35 X 
   
      FIXED COSTS 
     Wages 51600 
    Rent 36000 
    Insurance 4800 
    Depreciation 32000 
    Total Fixed costs 124400 
    
      Cost of goods sold 124400 +0.

Tariq has invested $180,000 in a new Moroccan and Mediterranean family-style restaurant, of which $160,000 was immediately used to purchase equipment and $20,000 was retained for working cash....

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