Ask Question
15 January, 15:22

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 bar sales revenue only have to increase to provide this added profit

+5
Answers (1)
  1. 15 January, 15:26
    0
    increase in sales required = $10,417

    Correct option is (c)

    Explanation:

    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)
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “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 ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers