Jameel owns a popular burger sandwich restaurant in Ramallah, since five years following the success of his first restaurant, Jameel is now considering opening a second one in Nablus, by which he expects to succeed as he is manufacturing low fat meet with healthy side products. Jameel overall plan is to begin and run his new restaurant for five years, and sell both new restaurants off to a new owner and retire from the restaurant work. The cost of starting up as second restaurant will be as follows: Purchase of real estate (retail food outlet): $400,00 (which will be sold for the same price at the end of the project). Installation of specialized kitchen equipment: $40,000 Furniture and fittings: $25,000 Jameel estimates that the net working capital will increase by $20,000 for the first year for the new restaurant, which will be returned back at the end of year 5 (The end of the project), he also estimates the yearly operating cost for the new location would be identical to his current restaurant as follow: Labor cost (4 person): $96000 Raw Material: Meat (200 piece per day x 7 days x 52-week x 75 cent /piece): $54600 Drinks: $ 18400 Other Food supplies: $72800 Non-Food supplies: $22200 Total raw material: $168000 The expected revenue at the current location is as follows: Sales of burger and other food items: $418000 Drinks: $92000 Total revenue: $510000 in addition to contributing profits, Jameel expects that opening a second restaurant will decrease the cost of each Burger piece of Meat from 75 cents to 60 Cents in both locations. This due to economies of scale, Jameel expect also that he will be able to manage the two location himself. avoiding hiring a new manager for the new location. Assume: Tax rate is 20%, the required rate of return is 10%, Depreciate the kitchen equipment and the furniture over 5 years using straight line method. What are the fixed costs?
This a repost for solved question to solve fourth and fifth subparts please. The wanted questions will be in bold. I will attach your answers for the previous subparts.
CESIM Simulation: Jameel’s food restaurant
Jameel owns a popular burger sandwich restaurant in Ramallah, since five years following the success of his first restaurant, Jameel is now considering opening a second one in Nablus, by which he expects to succeed as he is manufacturing low fat meet with healthy side products.
Jameel overall plan is to begin and run his new restaurant for five years, and sell both new restaurants off to a new owner and retire from the restaurant work.
The cost of starting up as second restaurant will be as follows:
- Purchase of real estate (retail food outlet): $400,00 (which will be sold for the same price at the end of the project).
- Installation of specialized kitchen equipment: $40,000
- Furniture and fittings: $25,000
Jameel estimates that the net
- Labor cost (4 person): $96000
- Raw Material:
- Meat (200 piece per day x 7 days x 52-week x 75 cent /piece): $54600
- Drinks: $ 18400
- Other Food supplies: $72800
- Non-Food supplies: $22200
- Total raw material: $168000
The expected revenue at the current location is as follows:
- Sales of burger and other food items: $418000
- Drinks: $92000
- Total revenue: $510000
in addition to contributing profits, Jameel expects that opening a second restaurant will decrease the cost of each Burger piece of Meat from 75 cents to 60 Cents in both locations. This due to economies of scale, Jameel expect also that he will be able to manage the two location himself. avoiding hiring a new manager for the new location.
Assume: Tax rate is 20%, the required
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What are the fixed costs?
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What are the variable costs?
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Describe the demand on Jameel's Burger?
(answer the two questions bellow please)
3. Estimating the Burger Meal Price.
4. How could you:
- increase the demand for the Burger Meal
- increase the sales
- increase the profit
Expert Answer
“Since you have posted a question with multiple sub-parts, we will solve the first three subparts for you. To get the remaining sub-part solved please repost the complete question and mention the sub-parts to be solved.”.
I feel that the calculation of fixed cost and variable cost provided by you is wrong and so I have calculated the first three sub-divisions.
- Fixed costs are labor costs and depreciation costs.
- Variable costs are raw materials like pieces of meat, drinks, food suppliers, non-food supplies, etc.
- The demand for the burger is 200 per day, which can be increased by reducing the price of burgers to some extent.
Question 1.
The fixed costs are those costs that do not change with the change in production level. It remains constant for all levels of production within a relevant range. The following are the fixed costs for the given case:
Labor Cost 96,000
Depreciation on Kitchen equipment 8,000
Depreciation on Furniture and fitting 5,000
Total annual fixed cost $109,000
Question 2
Variable costs are those costs that change with the change in production. The more the production, the more will be variable cost and vice versa. The following are the variable cost for the given case:
Meat ($0.60 per piece) 43,680
Drinks 18,400
Other food supplies 72,800
Non-food supplies 22,200
Total variable cost $157,080
Question 3
The demand for burger estimated by Jameel on the basis of his already existed restaurant is 200 pieces per day. The total annual demand for burger annually will be 200 x 7 x 52 = 72,800.
Since the cost of meat will also be reduced from $0.75 per piece to $0.60 per piece, the sale price of the burger can also be reduced to a little which may result in higher sales for the Burger. This way, Jameel can raise the demand for the Burger.
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