The Express Banquet has two restaurants that are open 24 hours a day. Fixed costs for the two restaurants together total $459,000 per year. Service varies from a cup of coffee to full meals. The average sales check per customer is $58.50. The average cost of food and other variable costs for each customer is $3.40. The income tax rate is 30%. The target net income is $107,100.

Questions:

1. Compute the revenues needed to earn the target net income.
2. How many customers are needed to break even?
3. How many customers are needed to earn a net income of $107,100?
4. Compute the net income if the number of customers is 170,000.

To earn the target net income of $107,100, The Express Banquet needs to generate revenues of approximately $808,714.29. The break-even point is approximately 8,327 customers. If the number of customers is 170,000, the net income would be approximately $5,874,500.

Explanation:

Calculating Revenues Needed to Earn Target Net Income:

To calculate the revenues needed to earn the target net income, we can use the following formula:

Revenues = (Fixed Costs + Target Net Income) / (1 - Income Tax Rate)

Substituting the given values:

Revenues = ($459,000 + $107,100) / (1 - 0.30)

Revenues = $566,100 / 0.70

Revenues = $808,714.29

Calculating Break-Even Point:

The break-even point is the number of customers needed to cover all costs. To calculate the break-even point, we can use the following formula:

Break-Even Point = Fixed Costs / (Average Sales Check - Average Variable Costs)

Substituting the given values:

Break-Even Point = $459,000 / ($58.50 - $3.40)

Break-Even Point = $459,000 / $55.10

Break-Even Point ≈ 8,327 customers

Calculating Net Income:

To calculate the net income, we can use the following formula:

Net Income = (Number of Customers * Average Sales Check - Variable Costs per Customer) * (1 - Income Tax Rate) - Fixed Costs

Substituting the given values for 170,000 customers:

Net Income = (170,000 * $58.50 - $3.40) * (1 - 0.30) - $459,000

Net Income = ($9,945,000 - $578,000) * 0.70 - $459,000

Net Income ≈ $6,911,500 - $578,000 - $459,000

Net Income ≈ $5,874,500

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