is thinking of spending $3,000 more in Year 2008 on advertising (part
of marketing expense). Because of his marketing courses, he believes
he can design appealing advertisements to be placed in local
newspapers and aimed at the business luncheon trade. He estimates
that if the ads are placed, they will bring in 15 more people at
lunch each day. The average check for the additional lunch guests
would be the same as that calculated in Case 6. Use a 52-week year
and the days open from Case 6. Assume that the food and beverage
total cost of sales percentages will be the same as in Year 2007.
(This percentage was calculated in Case 3.) To serve the extra
guests, a new employee will have to be hired at lunch for four hours.
Hourly rate of pay including fringe benefits (a free meal while on
duty, vacation pay, and so on) will be $5.42 an hour. The following
variable expenses will remain at the same percentage to sales revenue
as they were in Year 2007 (see Case 3):
other expenses are assumed to be fixed and are unaffected by the
increased volume of business. Prepare calculations to show whether
the $3,000 should be spent. Refer to the income statement for the 4C
Company’s restaurant for Year 2007.
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