Question: CVP Analysis with Target Profits Tom Flannery has developed a new recipe for grilled fish and plans to open a take-away restaurant in Brisbane. His father-in-law has agreed to invest $500,000 in the operation provided Tom can convince him that profits will be at least 20 percent of sales revenues. Tom estimated that total fixed expense would be $24,000 per year and that variable expense would be approximately 40 percent of sales revenues.
Required:
1. How much sales revenue must be earned to produce profits equal to 20 percent of sales revenue? Prepare a contribution profit and loss statement to verify your answer.
2. If Tom plans on selling a 12-piece box of fish for $10 each, how many boxes must he sell to earn a profit equal to 20 percent of sales? 25 percent of sales?
3. Suppose Tom's father-in-law meant that the after-tax profit had to be 20 percent of sales revenue. Under this assumption, how much sales revenue must be generated by Tom's business?
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