# help undestanding the question

help undestanding the question

1. Prepare a contribution margin income statement using the given financial data.
Use the following format:
Sales
Variable costs
Cost of sales
Operating
Total variable costs
Contribution margin
Fixed costs
Operating
Total fixed costs
Net operating income
2. Compute the break-even volume of the number of lunches and dinners. Assume
that the CM% for each meal category is the same as the average CM% as calculated
in #1. Hint: To solve a break even sales mix, use the horizontal formula:
Net operating income = (\$Sales â€“ \$Variable costs) â€“ \$fixed costs
Net operating income = \$CM â€“ \$fixed costs
At Breakeven, NOI = \$0
Therefore, \$CM = \$ Fixed costs
Now solve for the unit \$CM for each item. Let X be the number of dinners, 2X the
number of lunches. \$CM is the combined total of the \$CM for dinners, and the \$CM
for lunches.
5. In order to increase NOI, the owner of the restaurant is considering adjustments to the quality
of food ingredients currently used. Rather than using premium ingredients, use of average
quality ingredients would reduce the cost of food by 10%. The owner proposes to not change
the current meal pricing. As the consultant, prepare a memo to the owner that presents the
pros and cons of this change in operations. What are the potential impacts on revenue, costs,
and net operating income may result from this change? The owner does not want to see a
decrease in net operating income. Could the owner make this change and absorb a decrease in
customers, and how would you demonstrate numerically to support your analysis? What other
factors or consequences of this decision should the owner consider besides the financial impact

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