Problem 3 Assume the approved food operations budget for the Hilotown Restaurant for 20X1 is as follows: Food revenue Food cost Payroll Payroll taxes/benefits Direct operating expenses Entertainment Advertising Utilities Administrative/general Repairs/maintenance Rent Real estate/property taxes Insurance Interest expense Depreciation Income (profit) before taxes $ 1,400,000 434,000 364,000 42,000 112,000 14,000 42,000 70,000 56,000 14,000 70,000 28,000 14,000 42,000 28,000 70,000 % of Revenue 100 31 26 3 8 1 3 5 4 1 5 2 N132|5O|| Unforeseen problems beyond the control of the owner (ongoing terrorism alerts tha have significantly reduced the tourist travel on which the restaurant relies) have caused
Problem 3 Assume the approved food operations budget for the Hilotown Restaurant for 20X1 is as follows: Food revenue Food cost Payroll Payroll taxes/benefits Direct operating expenses Entertainment Advertising Utilities Administrative/general Repairs/maintenance Rent Real estate/property taxes Insurance Interest expense Depreciation Income (profit) before taxes $ 1,400,000 434,000 364,000 42,000 112,000 14,000 42,000 70,000 56,000 14,000 70,000 28,000 14,000 42,000 28,000 70,000 % of Revenue 100 31 26 3 8 1 3 5 4 1 5 2 N132|5O|| Unforeseen problems beyond the control of the owner (ongoing terrorism alerts tha have significantly reduced the tourist travel on which the restaurant relies) have caused
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Question
100%
Do problem 3, a through c
![142 Chapter 4
calendar year
a substantial reduction in revenue. In June (the restaurant operates on a
[January-December] budget), the owner reforecasted revenues down to $1,100,000.
What will be the fixed costs under the new budget?
b. Assuming the owner wants to maintain the original "bottom line" profit (income
[profit] before taxes) of $70,000, how much in revenues will remain to be spent on vari-
able costs?
a.
c. Assuming the owner is willing to break even on the restaurant's operation, how much
in revenues will remain to be spent on variable costs?
Problem 4
The Blue Ridge Café's budget for next year indicates the following:
Revenues
$765,000
Total fixed costs
Total variable costs
Total Costs
Net income before tax
$ 91,000
$512,000
$603,000
$162,000
Revenue estimates assume 89,470 guests will be served.
a. What is the guest check average?
b. What are the variable costs per guests?
c. How many guests must be served for the Blue Ridge Café to break even?
d. If the owner needed a net income of at least $114,000, how many guests would need to
be served?
e. How many more guests are needed to generate a net income of $114,000 than are
needed to break even?
f. If the Blue Ridge Café decides to close during two months that traditionally generate
slow business, it will lose about 18,000 guests. If the owner chooses to do this, what
will be the new net income or loss?
g. The manager is considering a kitchen renovation that will add $7,500 in new fixed
be if it does this during the first year that it closes for two months? (See Question F
costs (depreciation and interest) each year. How much will the café's net income (loss)
above.)
h. The Blue Ridge Café closes for two months (Question F), incurs the additional fixed
costs (Question G), and is the "victim" of a problem in the economy that results in a
14-percent increase in variable costs. How many additional guests are needed for it to
maintain its net income level (Question G)?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F6a2f95ed-7171-45b2-9304-9328ccddc530%2F25d9b2e2-8bcb-40a7-bb9a-5c28c8068c34%2F74ycktc_processed.jpeg&w=3840&q=75)
Transcribed Image Text:142 Chapter 4
calendar year
a substantial reduction in revenue. In June (the restaurant operates on a
[January-December] budget), the owner reforecasted revenues down to $1,100,000.
What will be the fixed costs under the new budget?
b. Assuming the owner wants to maintain the original "bottom line" profit (income
[profit] before taxes) of $70,000, how much in revenues will remain to be spent on vari-
able costs?
a.
c. Assuming the owner is willing to break even on the restaurant's operation, how much
in revenues will remain to be spent on variable costs?
Problem 4
The Blue Ridge Café's budget for next year indicates the following:
Revenues
$765,000
Total fixed costs
Total variable costs
Total Costs
Net income before tax
$ 91,000
$512,000
$603,000
$162,000
Revenue estimates assume 89,470 guests will be served.
a. What is the guest check average?
b. What are the variable costs per guests?
c. How many guests must be served for the Blue Ridge Café to break even?
d. If the owner needed a net income of at least $114,000, how many guests would need to
be served?
e. How many more guests are needed to generate a net income of $114,000 than are
needed to break even?
f. If the Blue Ridge Café decides to close during two months that traditionally generate
slow business, it will lose about 18,000 guests. If the owner chooses to do this, what
will be the new net income or loss?
g. The manager is considering a kitchen renovation that will add $7,500 in new fixed
be if it does this during the first year that it closes for two months? (See Question F
costs (depreciation and interest) each year. How much will the café's net income (loss)
above.)
h. The Blue Ridge Café closes for two months (Question F), incurs the additional fixed
costs (Question G), and is the "victim" of a problem in the economy that results in a
14-percent increase in variable costs. How many additional guests are needed for it to
maintain its net income level (Question G)?
Transcribed Image Text:c. W
The manager of the Spartan Land Restaurant is developing the operating budget for next
year using the following financial information from the current year:
Item
Food revenue
Beverage revenue
Food cost
Beverage cost
Labor (including benefits)
Other operating costs
Fixed costs
Food revenue
Food cost
Current Year's
Amount
Payroll
Payroll taxes/benefits
Direct operating expenses
Entertainment
Advertising
Utilities
a. What is the current year's budgeted profit (loss)?
b. Develop next year's budget: indicate the profit (loss).
Problem 2
Administrative/general
Repairs/maintenance
Rent
Real estate/property taxes
Insurance
Interest expense
$973,000
$112,500
Problem 3
Assume the approved food operations budget for the Hilotown Restaurant for 20X1 is as
follows:
36%
23%
$298,000
16%
$70,000
Next Year's Percentage
Increase (Decrease)
Depreciation
Income (profit) before taxes
4%
2%
1%
(1%)
(2%)
same
same
$
1,400,000
434,000
364,000
42,000
112,000
14,000
42,000
70,000
56,000
14,000
70,000
28,000
14,000
42,000
28,000
70,000
Next Year's
Amount ($)
% of Revenue
100
31
26
3
8
1
3
5
4
1
5
213 2011
5
Unforeseen problems beyond the control of the owner (ongoing terrorism alerts that
have
Expert Solution
Step 1
Variable Cost :— It is the cost that changes with change in units. Variable cost per unit is constant for all flexible units.
Fixed Cost :— It is the cost that is constant for all flexible units. It doesn't depends on units.
Contribution Margin Ratio (CM Ratio) :— It is the ratio of contribution and revenues.
Required sales :— It is the value of sales that is required for the given desired profit.
It is calculated as follows :—
Required sales (in value)
= (Fixed Cost + Profit)/CM Ratio
Break Even Sales :— It is the value of sales at which total cost is equal to total revenue.
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