Steve and Linda Hom live in Bartlesville, Oklahoma. Two years ago, they visited Thailand. Linda, a professional chef, was impressed with the cooking methods and the spices used in Thai food. Bartlesville does not have a Thai restaurant, and the Homs are contemplating opening one. Linda would supervise the cooking, and Steve would leave his current job to be the maître d’. The restaurant would serve dinner Tuesday through Saturday.
Steve has noticed a restaurant for lease. The restaurant has seven tables, each of which can seat four. Tables can be moved together for a large party. Linda is planning two seating’s per evening, and the restaurant will be open 50 weeks per year.
The Homs have drawn up the following estimates:
Average revenue, including beverages and desserts .... $ 45 per meal
Average cost of food ............... 15 per meal
Chef’s and dishwasher’s salaries ............ 5,100 per month
Rent (premises, equipment) ............. 4,000 per month
Cleaning (linen, premises) .............. 800 per month
Replacement of dishes, cutlery, glasses ........ 300 per month
Utilities, advertising, telephone ........... 2,300 per month
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.
3. How many meals must the Homs serve each night to earn their target profit of $ 75,600?
4. What factors should the Homs consider before they make their decision as to whether to open the restaurant or not?