Question

During 2020, the Beach Restaurant had sales revenues and food costs of $790,000 and $545,000, respectively. During 2021, Beach plans to introduce a new menu item that is expected to increase sales revenues by $135,000 and food costs by $59,000. Assuming no changes are expected for the other food items, operating profits for 2021 are expected to increase by:

Answer 1

Answer: Operating profits for 2021 are expected to increase by $76000.

Explanation:

Given that,

Sales revenues of beach restaurant = $790000

food costs = $545000

During 2021, restaurant plans to introduce new menu item as follows:

Expected increase in sales revenue by $135,000 and in food costs by $59,000.

So, Operating profits for 2021 = Expected increase in sales revenue - Expected increase in food costs

= $135000 - $59000

= $76000

∴ Operating profits for 2021 are expected to increase by $76000.