Joyful Journeys Music School provides private music lessons for elementary students.Its operating costs are
2. Joyful Journeys Music School provides private music lessons for elementary students. Its operating costs are
Rent on facilities $2,200 per month
Advertising $274 per month
Instrument Rent $750 per month
Teaching Instruction $40 per student
Books $5 per student
Other Costs $3 per student
Joyful Journeys charges $100 per student per month.
(a) Determine the company’s break-even point in (1) number of students taught per month and (2) dollars.
(b) Joyful Journeys has just received notice that the rent on their facilities will be increasing by $500 per month and the instrument rent will also be increasing $20 per month. (1) Determine the company’s break-even point in the number of students taught per month based on the new information. (2) Determine the amount to charge per student assuming that Joyful Journeys does not increase the number of students taught.
3. The Eatery is a restaurant in DeKalb, Illinois. It specializes in deluxe sandwiches in a moderate price range. Michael Raye, the manager of The Eatery, has determined that during the last 2 years the sales mix and contribution margin ratio of its offerings are as follows.
Percent of Contribution
Total Sales Margin Ratio
Appetizers 15% 60%
Main entrees 60% 25%
Desserts 10% 40%
Beverages 15% 80%
Michael is considering a variety of options to try to improve the profitability of the restaurant. His goal is to generate a target net income of $176,000. The company has fixed costs of $352,000 per year.
(a) Calculate the total restaurant sales and the sales of each product line that would be necessary to achieve the desired target net income.
(b)Michael believes the restaurant could greatly improve its profitability by reducing the complexity and selling price of its entrees to increase the number of clients that it serves. It would then more heavily market its appetizers and beverages. He is proposing to reduce the contribution margin ratio on the main entrees to 10% by dropping the average selling price and increasing the contribution margin ratio on desserts to 50% by reducing costs. He envisions an expansion of the restaurant that would increase fixed costs by 50%. At the same time, he is proposing to change the sales mix to the following.
Percent of Contribution