Sandwich Queen is looking to expand its restaurant facilities to increase its seating capacity of for the 40%. Results for the current year are :-
In $000
Food sales - 200
Drink sales - 170
Food cost 145
Drink cost 77
Staff cost 40
Other cost 20
Cash flow 88.
Sales and variable cost will increase in line with the seating capacity increase. The other cost are 40% fixed. An extra employee will be required to solve the extra seating capacity. There are currently for employees on an equal wage.
What is the relevant annual net cash flow to the nearest $000 of the proposed expansion?
I am not able to calculate other costs.
Can you please help me to find other cost.
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Capital Budgeting
4y ago#1On the basis of what you have typed it would seem that 40% x $20 = $8 is a fixed cost and that the remaining $12 is a variable cost.
Therefore if they increase the capacity by 40% then the $8 will still be $8 but the $12 will increase to 12 x 1.4 = $16.80. So a total for 'other costs' of 8 + 16.80 = $24.80.
Thanks for your reply.
Even I was calculating same as you did, but it is wrong as per the book solution.
In the book the answer for 40% increase is calculated as:-
20*60%*40% Which gives answer of 5 and total of 25. But calculation should be 4.8.
I got confused between calculation and books answer, but on your solution its clear printing error in the book.
Maybe the rounded off.
4y ago#3It is rounding off because the question asks for the answer to the nearest thousand.
So although the exact figure is $24,800, this is $25,000 to the nearest thousand.
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