managerial accounting question 460274

QUESTION 1

Bottomless Pit is a new all-you-can-eat buffet restaurant that target budget conscious buffet eaters. After two months, the average number of customers and the average cost of food was recorded and reproduced below.

Week Number of customers Cost of food ($)

1 4,892 59,380

2 3,675 45,350

3 3,250 41,260

4 3,375 43,260

5 4,285 47,950

6 4,328 48,500

7 4,684 51,200

8 4,484 49,200

9 4,062 46,600

In addition to the food costs listed, the following monthly costs are also incurred.

Variable Fixed

$ $

Other direct materials 1.00

Direct labour 3.00

Overhead costs 0.50

Selling costs 0.50 12,000

Administrative costs 25,000

The cost of the buffet is $29 per person.

Required

(a) Using the power cost formula in part (a) of Question 1, calculate the breakeven point for the restaurant in:

(i) number of customers; and

(ii) dollars

(b) Bottomless Pit is considering running a special where the 4th diner eats for free. If it is estimated that this will increase the number of customers by 20%, is this a good idea?

(c) Under what circumstances would the opposite for part (b) be true? (i.e. if it was a good idea, under what circumstances would it be a bad idea and vice versa)

(13marks)