Breakeven Analysis: Texas Roadhouse Restaurant, Case Study Example

Texas Roadhouse Restaurant is a service industry company in USA; the Peoria: Illinois branch has various departments holding various sections. The department will be Alexander’s Steakhouse and the section is sea foods, majoring on the activity of sea foods preparation and sale. The foods are sword fish grilled sold @ $53, Atlantic salmon @ $ 18, lobster trail South African @ $ 18. The variable costs are $48 to prepare the three different meals.

The fixed cost for the first three months on this section: 640,000

Variable cost per unit US $ 48: 960,000

Revenue on 20,000 units @US$ 89: 1780,000

Unit of measurement is per plate of sea food served.

1. Income Statement for the three months, January, February and March in the year 2009.

Per unit                       Total

Sales revenue                                      89                                1,780,000

Variable cost                                       48                                  960,000

Contribution                                       41                                820,000

Less: fixed cost                                                                       640,000

Profit                                                                                         180,000

2. Finding profits (?) using contribution margin (CM) and X is number of units

? = CM × X – F

? = 41 × 20,000 – 640,000 = 180,000

3. Breakeven level of activity (units)

At B.E.P revenue (R) = costs (C) so that ? = 0

Let ? = 0

Therefore 0 = CM × X – F

F = CM × X

X = F

CM

Breakeven in units X = 640,000 ÷ 41 = 15,610 unit

Texas Restaurant should prepare and sale 15,610 units in order to breakeven.

The company’s performance in terms of profits and breakeven level is good and the Company can count the sea foods section being viable.

4. Breakeven sales revenue

This requires the use of contribution margin ratio (CMR) which is given by

Price = P

P-V = CM = CMR

P          P

? = CMR × R – F       thus ? = 0

CMR = CM =   41 =  0.46

P       89

Therefore 0 = 0.46 × R – F

R=   F    = 640,000 = $ 1,391,304

CMR    0.46

References

Pandey, I.M. (1999). Financial Management. 8^th Ed. New Delhi: Vikas Publishing House PVT Ltd.