**Managerial Accounting - Bottoms Up Approach to Pricing****Practice Problem #2:**- **Desired Net Income:** Owners want a 23% after-tax return on a $250,000 investment of new FF&E.- **Income Tax Rate:** 37% of operating income before tax.- **Depreciation:** 10% of the book value of the $250,000 of FF&E.- **Annual Costs:** - Rent = $50,000 - Insurance/License = $6,000 - Utilities/Maintenance = $7,500 - Administrative = $15,500 - Management Salary = $40,000- **Variable Costs:** - COS Food and Beverage = 41% (Too High!) - Labor = 31% - Other = 6%**#1 Identify Projected Costs:**| | ||---------------------------|--------------------------------|| Desired Net Income after Tax: | || Income Tax: | |**Known Annual Costs ($$):**| Depreciation | || Rent | || Insurance/License | || Utilities/Maintenance | || Administrative | || Management Salary | || Total Known Annual Costs | |**Variable Costs (% of Sales):**| COS - Food and Beverage | || Labor | || Other Operating Variable Costs | |---**#2 Prepare Projected Income Statement (Incomplete)**---This excerpt provides a detailed framework for evaluating the financial aspects of a business using a "Bottoms Up Approach." The main focus is on calculating the desired net income after tax by considering various fixed and variable costs, along with a specific income tax rate. This approach combines cost analysis with income projections to support strategic decision-making in managerial accounting. Certainly! Here is a transcription of the image for an educational website:---**Managerial Accounting - Bottoms Up Approach to Pricing**---**#2 Prepare Projected Income Statement (Incomplete)**| | $$ | % ||-----------------------|-------------|--------------|| Sales Revenue | Unknown | 100% || COS - Food and Beverage| | || Labor | | || Other Operating VC | | || **Total Variable Cost %** | | || Depreciation | | || Rent | | || Insurance / License | | || Utilities/Maintenance | | || Administrative | | || Management Salary | | || Income Tax | | || Net Income | | || **Total** | | || **Total Costs as a % Sales Rev** | | 100% |---**#3 Prepare Condensed Projected Income Statement**| | | ||-----------------------------|------------|------------------------------|| Sales Revenue | | || Variable Costs (Food, Bev, Labor, Other) | | || Contribution Margin | | || Total Operating Costs | | || Operating Income (BT) | | || Income Tax | | || Net Income | | |---**#4 Solve for Average Check Projections by Meal Period to support projected Sales Revenue**Knowing the forecasted sales revenue allows businesses to accurately forecast overall average check and average check by meal period. This is critical information needed for the budgeting process and selecting strategic pricing strategies.**Average Check by Meal Period = (Revenue generated from meal period / Seats x T/O x number days open)****Seat Turnover = # guests or covers / # seats in operation or available (Can be calculated by Meal Period or Day)**---**Managerial Accounting - Bottoms Up Approach to Pricing**---This text provides guidance on preparing a projected income statement and solving for average check projections, which are integral to budgeting and pricing strategies in managerial accounting.

Bottom-up Approach: This method of preparing financials is based on reverse working of all the…

Practice Problem #2: Desired Net Income: Owners want a 23% after tax return on a $250,000 investment of new FF&E • Income Tax Rate: 37% of operating income before tax • Depreciation of 10% of the book value of the $250,000 of FF&E • Annual Costs: Rent=$50,000, Insurance/Licenses-$6,000, Utilities/Maintenance-$7,500, Administrative=$15,500, Management Salary=$40,000 • Variable Costs-coS Food and Beverage 41% (Too High!), Labor=31%, Otherm6% 1 Identify Projected Costs Desired Net Income after Tax: Income Tax Known Annual Costs ($$): Depreciation Rent Insurance /License Utities/Maintenance Administrative Management Salary Total Known Annual Costs Variable Costs (% of Sales) COS Food and Beverage Labor Other Operating Variable Costs

Practice Problem #2: Desired Net Income: Owners want a 23% after tax return on a $250,000 investment of new FF&E • Income Tax Rate: 37% of operating income before tax • Depreciation of 10% of the book value of the $250,000 of FF&E • Annual Costs: Rent=$50,000, Insurance/Licenses-$6,000, Utilities/Maintenance-$7,500, Administrative=$15,500, Management Salary=$40,000 • Variable Costs-coS Food and Beverage 41% (Too High!), Labor=31%, Otherm6% 1 Identify Projected Costs Desired Net Income after Tax: Income Tax Known Annual Costs ($$): Depreciation Rent Insurance /License Utities/Maintenance Administrative Management Salary Total Known Annual Costs Variable Costs (% of Sales) COS Food and Beverage Labor Other Operating Variable Costs

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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