Asked by Rosalie Maniquiz on Sep 22, 2024
Verified
Cliff runs a restaurant in a small town known for its theatres and tourist attractions. Cliff charges an average of $18 per meal. He estimates his variable costs to be $6 per meal and fixed costs are $12,000 per month. Cliff has the capacity to serve 2,000 meals per month. At full capacity, what is Cliff's net income?
A) $12,000
B) $10,000
C) $15,000
D) $7500
E) $14,500
Variable Costs
Costs that fluctuate with the level of production or sales volume, such as materials and labor.
Fixed Costs
Expenses that do not change in total regardless of changes in the volume of goods or services produced or sold.
- Determine the net income using specified revenue, cost, and price variables.
- Examine the impact of capacity utilization on profitability and the determination of break-even points.
Verified Answer
UQ
Usman Qurashi2 days ago
Final Answer :
A
Explanation :
Net income can be calculated by subtracting total costs from total revenue. Total revenue at full capacity (2,000 meals at $18 each) is $36,000. Total variable costs are $6 per meal, so for 2,000 meals, that's $12,000. Adding the fixed costs of $12,000, total costs are $24,000. Subtracting total costs ($24,000) from total revenue ($36,000) gives a net income of $12,000.
Learning Objectives
- Determine the net income using specified revenue, cost, and price variables.
- Examine the impact of capacity utilization on profitability and the determination of break-even points.