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The restaurant Easy Lunch provides its services to passengers in transit at the Ms
city airport. Easy Lunch offers its customers two alternative set menus:
The restaurant has a capacity to serve 19,500 set meals per month. This restaurant
opens all year round.
Additional operating data are given in the following table:
Standard
menu
Special
menu
117,000
63,000
110,000
150,000
40,000
55,000
25,000
3.5
4.25
Concept
X B=
FC
1 ( SP1 AVC 1 ) + 2 ( SP2 AVC 2 )
Then, we can proceed by calculating the average variable costs for each type of menu:
In the case of the first type of menu, we have that:
AVC 1=
100,000+ 40,000
+3.5=4.78 euros/menu
117,000
AVC 2=
150,000+ 55,000+25,000
+ 4.5=7.90 euros /menu
63,000
1=
x1
117,000
=
=0.65
X 117,000 +63,000
2=
x1
63,000
=
=0.35
X 117,000 +63,000
X B=
630,000
=107,209 menus/ year
0.65 ( 104.78 ) +0.35 ( 157.90 )
This is the minimum amount of menus Easy Lunch should serve in order to start
producing positive profits.
The occupancy rate at the break-even point is given as follows:
RO B=
107,209
=0.4581 45.81
19,500 x 12
With an occupancy rate higher than 45.81%, the restaurant is able to generate positive
profits.
Seasonality problems
Given the decrease in demand during the period of December-February, the operations
management is considering the possibility to close the restaurant. Under the shutdown scenario, the restaurant would save 35% of the maintenance costs. The tasks of
closing and reopening would amount to 10,000 euros.
By using this information:
What must the predicted minimum amount of menus be in the low season in
order to decide to keep the restaurant open?
Solution
In order to estimate this threshold, we will use the following formula:
XT =
MOC PC
1 ( SP 1AVC 1 ) + 2 ( SP2 AVC 2 )
XT =
35,00010,000
=4,258 menus
0.65 (104.78 )+ 0.35 (157.90 )
We a volume higher than 4,258 menus, Easy Lunch could keep the business running
every day of the year. With at least this amount of menus, the weighted average
contribution margin would allow the restaurant to cover the saving (reduction in fixedcosts) it would have under the prospect of closing.