Alan and Ping originally came from China and now live in Rochester, New York. Alan, currently a professor at a state college, considers himself a very good cook of Chinese food. Although Rochester has many Chinese restaurants, Alan and Ping feel all these restaurants do not serve authentic Chinese dishes, and they are contemplating opening one. Ping would supervise the cooking, and Alan would leave his current job to be maître d’. The restaurant would serve dinner Tuesday through Saturday.

Alan 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. Ping is planning two seatings per evening, and the restaurant will be open 50 weeks per year.

Alan and Ping have drawn up the following estimates:

Average revenue, including beverages and desserts	$45 per meal
The 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)	$4,000 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 an operating income of $75,600 for the year.
3. How many meals must the restaurant serve each night to earn a target profit of $75,600?
4. What factors should Alan and Ping consider before they make their decision as to whether to open the restaurant? You may discuss these factors are not listed above but should be included in the decision-making procedure (especially other necessary costs related to operating a restaurant).

Answer rating: 100% (QA)

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