Question

During 2016, the Beach Restaurant had sales revenues and food costs of $800,000 and $600,000, respectively. During 2017, Beach plans to introduce a new menu item that is expected to increase sales revenues by $100,000 and food costs by $40,000. Assuming no changes are expected for the other food items, operating profits for 2017 are expected to increase bya.) $260,000.b.) $100,000.c.) $60,000.d.) $40,000.

Answer 1

Answer:

It is $60,000 (C)

Explanation:

As at 2016 :

Operating Profits =$800,000- $600,000

                            =$200,000.

At at 2017

Operating Profit = (800,000+100,000) -(600,000+40,000)

                           =900,000-640,000

                           =$260,000

Increase in Operating Profit = $260,000- $200,000.

                                                =$60,000

This represents increase of [ (60,000/200,000)*100% ]  30%