Problem

A cocktail bar is currently making $582,000 annual sales revenue. Liquor cost is 38% and other variable costs at this level of sales revenue are 28%. Fixed costs are $150,000.

1. What is the annual operating income?

a. $47,880 b. $221,160 c. $312,960 d. $360,840

2. The owner wants to increase the manager's salary by $12,000 a year. By how much will sales revenue have to increase to provide this additional salary and maintain the current level of operating income? (Any added sales revenue will come from increasing seat turnover by increasing customer service.)

a. $12,000 b. $18,182 c. $20,988 d. $35,294

3.The owner decided to increase menu prices by 6%. The owner believes the price increase can be made without losing any customers and without increasing cost of sales or other variable costs. The manager salary increase still applies. What will the bar's operating income be?

a. $70,800 b. $162,000 c. $232,800 d. $384,120

4. From the Question 3, what is the variable cost %?

a. 28.0% b. 38.0% c. 62.3% d. $66.0%