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 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

Answer 1

Answer:

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)