Asked by Brendan Aikin on Jun 02, 2024
Verified
Cliff runs a restaurant in a small town known for its theatres and tourist attractions. Cliff charges an average of $18 per meal. He estimates his variable costs to be $6 per meal and fixed costs are $12,000 per month. Cliff has the capacity to serve 2,000 meals per month. What number of meals must be sold to generate a net income of $7,800?
A) 1,550 meals
B) 1,600 meals
C) 1,700 meals
D) 1,750 meals
E) 1,650 meals
Net Income
The total earnings of a person or organization after subtracting all expenses and taxes.
Variable Costs
Costs that change in proportion to the level of activity or volume of production in a company.
Fixed Costs
Expenses that do not change in proportion to the activity of a business, such as rent, salaries, and insurance.
- Implement the principles of fixed and variable expenses to calculate the essential sales volume to reach a specified net income.
- Scrutinize how capacity utilization affects net income and the establishment of break-even points.
Verified Answer
VD
Vusumzi De Vuss NogayaJun 09, 2024
Final Answer :
E
Explanation :
To find the break-even point or target profit point, we use the formula: (Fixed Costs + Target Profit) / (Selling Price per Unit - Variable Cost per Unit). Here, Fixed Costs = $12,000, Target Profit = $7,800, Selling Price per Unit = $18, and Variable Cost per Unit = $6. Plugging these into the formula gives: ($12,000 + $7,800) / ($18 - $6) = $19,800 / $12 = 1,650 meals.
Learning Objectives
- Implement the principles of fixed and variable expenses to calculate the essential sales volume to reach a specified net income.
- Scrutinize how capacity utilization affects net income and the establishment of break-even points.