Cost Plus Pricing Methods

Fish sandwich costs = $3.00

Desired food cost percentage = 30%
Price = $3.00/(.3) = $10

Breakeven Point

1) You are thinking of purchasing Benny’s famous ice cream franchise.

- They sell only one type of ice cream for $4
- Each ice cream costs $1 to produce. Assume you have no other variable costs and that you
would be the only employee.
- You need to cover the following monthly fixed costs:
o Rent = $2000 Loan Repayment = $3500 Insurance = $600 Utilities = $500
- How many ice creams do you need to sell every day to make it worth your while? (assume 30
days in a month)
o $6,600/$3 = 2200 ice creams per month (74 a day)
 (fixed costs)/(CM per unit)
 CM$/unit = (avg check or unit price)(1-variable cost%)
 Fixed costs = rent, utilities, insurance, loans, your salary

2) You are thinking of closing your restaurant on Sunday which is open from 10am-10pm. Your prior
sales and costs for this day are:
- 3 wait staff @ $2.13/hour
- 2 kitchen staff @ $15/hour
- CoGS = 35% (assume this accounts for all of your variable costs)
- Average check = $8
- Number of covers = 50
Should you close the store on Sunday?
- Labor Cost = (12*2.13*3) + (12*15*2) = $436.68
- Revenue = 50*$8 = $400
- Contribution Margin = $400*(1-.35) = $260
How many covers would you have to do to make it worth your while?
- CM per customer = ($8*(1-.35) = $5.20
- Total Costs to Cover (labor) = $436.68
- $436.68/$5.2 = 84 covers
Is this enough to stay open?

3) Dean Michael Johnson is thinking about opening Mac’s café on Sunday. He has the following sales
projections and related costs.

Sunday Noon-10pm
2 Kitchen staff @ $12/hour each (staffed during entire time Mac’s is open)
1 Manager @ $20/hour (staffed entire time mac’s is open)
Utilities = $100 (for Sunday)
CoGS = 32% (assume these are only variable costs)
Number of Covers Sunday = 50 Average check = $6
 A) What’s your breakeven point in number of covers for Sunday?
(fixed costs)/(CM per unit) = 540/(.68)(6) = 132.3 = 133 covers

B) Based on the figures above, would you recommend that Mac’s stay open on Sunday?

Mac’s should not stay open because the number of covers is more than twice the number it
normally takes. Mac’s can’t even cover all of its fixed costs for the revenue of $300.

C) Besides an economic incentive/disincentive to stay open or closed, what are two other factors
involving different stakeholders that may influence your decision?
a. Want to attract as many customers as possible. If you are closed you’re turning away
potential loyal customers
b. Could be a luxury provided. For example a restaurant in a hotel need to always be open
b/c it’s a luxury they offer to all of their guests.

RevPASH

Calculate the RevPASH for last night

Number of 4 tops = 25
RevPASH = (6,000)/[(4*25)(5)(1)] = $12
Hours of operation: 5pm-10pm
Last Night Sales = $6,000

Calculate RevPASH for August

Revenue for August = $400,000
Number of sq ft in restaurant = 3,000 sqft $400,000
Number of covers per day = 300 = $𝟕. 𝟖𝟐
[(150)(11)(31)]
Number of restaurant seats = 150
Hours of operation (daily) = 11am – 10pm

Item Selling Price Item Food Cost % Contribution Margin

$
Lobster Dumpling $15.00 35% $9.75
Ginger chicken $8.00 76.8% $5.85

Breakeven

$6 price 25% VC Fixed costs: $5,500 Item: hot dogs

Breakeven point: (5,500)/[(6)(1-.25)] = 1,223 hotdogs

If hiring another employee would allow you to sell 1000 more hotdogs per month. What is the most you
would pay him/her? [(6)(.75)](1000) = $4,500 (max you would pay)