Joann Swanson owns and operates a restaurant. Her fixed costs are $17,000 per month. She serves luncheons and dinners. The average total bill (excluding tax and tip) is $18 per customer. Swanson’s present variable costs average $9.50 per meal.
1. How many meals must she serve to attain a profit before taxes of $8,500 per month?
2. What is the break-even point in number of meals served per month?
3. Suppose Swanson’s rent and other fixed costs rise to a total of $25,420 per month and variable costs also rise to $11.40 per meal. If Swanson increases her average price to $22, how many meals must she serve to make $8,500 profit per month?
4. Assume the same situation described in requirement 3. Swanson’s accountant tells her she may lose 15% of her customers if she increases her prices. If this should happen, what would be Swanson’s profit per month? Assume that the restaurant had been serving 3,000 customers per month.
5. Assume the same situation described in requirement 4. To help offset the anticipated 15% loss of customers, Swanson hires a pianist to perform for 4 hours each night for $2,300 per month.
Assume that this would increase the total monthly meals from 2,550 to 2,800. Would Swanson’s total profit change? By how much?