question archive You are a restaurant manager, and you are given two banquet function options on a same day
You are a restaurant manager, and you are given two banquet function options on a same day
Subject:FinancePrice:2.86 Bought3
You are a restaurant manager, and you are given two banquet function options on a same day. You have a daily fixed cost of $ 5,000. Determine which banquet option we should accept given following information. Explain why. Show your work to receive full points.
Banquet Option 1
- $20 Meal per person
- 200 guests
- Variable cost
· Food cost : $4.00
· Wage cost: $3.00
· Other variable cost: $3.00
Banquet Option 2
- $15 Meal per person
- 300 guests
- Variable cost
· Food cost : $3.00
· Wage cost: $2.00
· Other variable cost: $1.00
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In order to choose which Banquet to accept the order, we need to at least break even
Banquet Option 1
Break even sales (units) = fixed cost / contribution margin per unit = $5000/($20-($4+$3+$3))
= $5000/$10 = 500 people @ $20 per person
Therefore, we should not accept the order of 200 people at $20, as minimum people required to break even is 500 people.
Banquet Option 2
Break even sales (units) = fixed cost / contribution margin per unit = $5000/($15-($3+$2+$1))
= $5000/$9 = 555.55 people @ $15 per person
Therefore, we should not accept the order of 300 people at $15, as minimum people required to break even is 555.55 people.
We should decline both Banquets
