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- This topic has 3 replies, 2 voices, and was last updated 1 year ago by John Moffat.

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- January 11, 2022 at 7:25 pm #645698
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.January 12, 2022 at 8:40 am #645723On 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.

January 12, 2022 at 7:49 pm #645783Thanks 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.January 13, 2022 at 7:58 am #645801It 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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