Reference no: EM13918369

Michael De Santa was always on what he called the seafood diet. Most thought it meant he only ate fish. What it actually meant was he saw food and he ate it “the see food diet.” This is why the Los Santos Restaurant Division reported to him. The division was composed of three individual businesses. A night club flanked on the right side by a steak house and flanked on the left side by an Italian restaurant featuring recipes from his Sicilian roots. The $300,000 of steak house fixed expenses included the compensation of employees of $120,000. These employees would be released if the steak house was closed. All of the steak house’s equipment is fully depreciated, so none of the $300,000 pertains to such items. Furthermore, disposal values of equipment will be exactly offset by the costs of removal and remodeling. If the steak house is closed, De Santa believes the Nightclub sales will increase by $250,000 and the Italian Restaurant sales by $200,000. The nightclub would not require any additional hiring but the Italian restaurant would require an additional person at an annual cost of $30,000. The modest sales predictions are partially based on the fact that the steak house has helped lure customers to the nightclub and, thus, improved overall sales. If the steak house is closed the lure impact would dissipate. Current financial data follows: Total Nightclub Italtian Steak Sales $6,000 5,000 $400 $600 Variable expenses 4.090 3,500 200 390 Contribution margin $1,910 (32%) $1,500 (30%) $200 (50%) $210 (35%) Fixed expenses Operating inc (loss) $810 $750 150 (90) REQUIREMENT C Prepare an analysis showing whether or not the steakhouse should be closed and make a recommendation (no need to write a memo a brief paragraph included in your analysis sheets is all that is expected)