help undestanding the question

1. Prepare a contribution margin income statement using the given financial data.

Use the following format:


Variable costs

Cost of sales


Total variable costs

Contribution margin

Fixed costs



Total fixed costs

Net operating income

2. Compute the break-even volume of the number of lunches and dinners. Assume

that the CM% for each meal category is the same as the average CM% as calculated

in #1. Hint: To solve a break even sales mix, use the horizontal formula:

Net operating income = ($Sales – $Variable costs) – $fixed costs

Net operating income = $CM – $fixed costs

At Breakeven, NOI = $0

Therefore, $CM = $ Fixed costs

Now solve for the unit $CM for each item. Let X be the number of dinners, 2X the

number of lunches. $CM is the combined total of the $CM for dinners, and the $CM

for lunches.

5. In order to increase NOI, the owner of the restaurant is considering adjustments to the quality

of food ingredients currently used. Rather than using premium ingredients, use of average

quality ingredients would reduce the cost of food by 10%. The owner proposes to not change

the current meal pricing. As the consultant, prepare a memo to the owner that presents the

pros and cons of this change in operations. What are the potential impacts on revenue, costs,

and net operating income may result from this change? The owner does not want to see a

decrease in net operating income. Could the owner make this change and absorb a decrease in

customers, and how would you demonstrate numerically to support your analysis? What other

factors or consequences of this decision should the owner consider besides the financial impact

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