Principles of Management Acct

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Assignment 2: Discussion—CVP Analysis

Review Decision Case 1 (Steve and Linda Hom) starting on page 984 of your text. In your initial post, answer the two case questions:

  1. Compute the annual breakeven number of meals and sales revenue for the restaurant.
  2. Compute the number of meals and the amount of sales revenue needed to earn operating income of $75,600 for the year.

In addition, address the following in one to two paragraphs:

  1. Identify and discuss several qualitative factors that should be considered in the decision process in addition to the quantitative data already computed in the case assignment.
  2. What are the potential benefits of applying CVP analysis to business decision making?
  3. Provide an example of another business scenario that could benefit from CVP analysis and explain how you would apply CVP analysis in the decision-making process.

CASE 1:

Steve and Linda Horn live in Bartlesville, Oklahoma. Two years ago they visited thailand. Linda, a professional chef was impressed with the cooking methodsand the spicesused in the thai food. Bartlesville does not have a thai resturaunt, and the Horn's are contemplating opening one. Linda would supervise the cooking, and Steve would leave his current jobto be the maitre d'. The resturaunt would serve dinner Tuesday - Saturday.

 

Steve has noticed a resturaunt for lease. The resturaunt has 7 tables, each of which can seat 4. Tables can be moved together for a large party. Linda is planning 2 seatings per evening, and the resturaunt will be open 50 weeks a year.

 

THE HORNS HAVE DRAWN UP THE FOLLOWING ESTIMATES;

 

Average revenue including beverages and dessert...........................................$          45 per meal

Average cost of food...........................................................................................$          15 per meal

Chef's and dishwashers salaries.........................................................................$  61,200 per year

Rent (premises, equipment)................................................................................$     4,000 per month

Cleaning (linen and premises).............................................................................$        800 per month

Replacement of dishes, cutlery, and glasses......................................................$         300 per month

Utilities, advertising, telephone............................................................................$   2,300 per month

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