What are the potential benefits of applying CVP analysis to business decision making? Provide an example of another business scenario that could benefit from CVP analysis and explain how you would apply CVP analysis in the decision-making process.
On ownAndrew worked as a chef in medium-sized restaurants until he decided to persue interest in health food and went to work with an obesity clinic. That was five years ago and Andrew is now ready to start own restaurant for people at risk for obesity or just those who want to watch their calories. Though health food can fetch higher prices, Andrew has decided to keep rates reasonable considering the socioeconomic profile of obesity sufferers and the location of restaurant.Andrew plans to serve only the main meals. restaurant can seat 15 customers at a time. Both lunch and dinner will be available for two hours and a diner is expected to occupy a seat for about 1 hour. The restaurant will be open Monday through Friday of each week throughout the year except for the first two weeks of July when Andrew vacations with family.COST TO RUNAverage revenue, including juices (per meal)??? $ 42Average cost of the food (per meal)????????. $ 12Chef?s and waiters? salaries (per year)??????? $59,920Rent (premises, equipment) (per month)????. $ 4,200Cleaning (linen and premises) (per month)????? $ 840Replacement of dishes, cutlery, glasses (per month) $ 300Utilities, advertising, telephone (per month)????? ?$ 2,000Healthy Eating TrendsObesity is a growing health concern in the U.S. As health awareness grows, people are more likely to eat health. However, Andrew?s restaurant will be the first of its kind in the area. first concern is whether the idea will find enough takers. He accepts that he might lose money during the first few weeks, but wants to know how many people he must attract to break even.BreakevenThe formulas are as follows:Breakeven in units = Total fixed costs_______Unit contribution marginUnit contribution margin= Unit sales priceVariable cost per unit= $42$12= $30The remaining cost items are considered fixed costs. The monthly cost items must be multiplied by 12 to convert them to yearly totals in order to calculate total fixed costs which amounts to $ 141,000.Breakeven point in meals = 141,000 / 30 = 4700 mealsCVP AnalysisReview Decision Case 1 (Steve and Linda Hom) starting on page 984 of your text. In your initial post, answer the two case questions:Compute the annual breakeven number of meals and sales revenue for the restaurant. Compute the number of meals and the amount of sales revenue needed to earn operating income of $75,600 for the year.In addition, address the following in one to two paragraphs:Identify and discuss several qualitative factors that should be considered in the decision process in addition to the quantitative data already computed in the case assignment. What are the potential benefits of applying CVP analysis to business decision making? Provide an example of another business scenario that could benefit from CVP analysis and explain how you would apply CVP analysis in the decision-making process.
