Chapter 9, Question 1

Jacob operates a Sicilian-themed restaurant that does a significant amount of carryout pizza
business. Jacob’s P&L has been designed to indicate the sales levels achieved in his dining room,
carryout business, and bar. The revenue Jacob achieved this month and last month is indicated on
the partial P&L shown below. Calculate Jacob’s total sales for this month and last month as well as
the variances and percentage variances in each of his revenue categories then answer the questions
that follow.

Last Month This Month Variance Variance %

Sales
Dining Room $84,500 $86,250
Carry-out 15,000 15,500
Bar 13,500 12,750
Total Sales
a. Did Jacob’s total sales this month increase or decrease when compared to last month’s sales?

Answer:

b. In what revenue-producing area(s) did Jacob’s sales increase?

Answer:

c. In which sales area did Jacob experience the greatest dollar increase?

Answer:

d. In which sales area did Jacob experience the greatest percentage increase?

Answer:

e. In which sales area did Jacob's sales not improve?

Answer:

Chapter 9
Q1
Chapter 9, Question 2

Roscco Burnett is the manager of a New York–style delicatessen. Roscco’s

boss has established performance targets that determine the amount of
bonus Roscco will receive each month. Roscco’s performance is evaluated
in five separate categories. Roscco receives a 2 percent bonus for each of
the five targets he achieves. He earns a 2 percent bonus when:
a. His food cost is 30 percent or less.
b. His total cost of sales is 31 percent or less.
c. His labor cost is 22 percent or less for the “Staff” category.
d. His total labor cost is 35 percent or less.
e. His prime costs are less than 63 percent.

If he achieves all five of his targets, the maximum bonus Roscco can
achieve is 10 percent of his monthly salary. Review the targets established
for Roscco’s performance, complete Roscco’s P&L Sales and Prime Cost
sections, and then answer the question that follows.

Roscco's P&L Sales and Prime Cost

This Month %
SALES
Food $71,500
Beverage 9,250
Total Sales
COST OF SALES
Food $22,250
Beverage 2,200
Total Cost of Sales
LABOR
Management $4,750
Staff 16,252
Employee Benefits 6,225
Total Labor Cost
PRIME COST

What percent of his monthly salary will Roscco receive as a

bonus this month?

Answer:

Chapter 9
Q2
Chapter 9, Question 3

Aafreen is the owner of a restaurant that features Pakistani and American cuisine. She operates on a calendar
year and prepares a monthly P&L as well as a year-to-date (YTD) P&L. Aafreen is preparing her P&L for June.
She has entered the amounts and calculated her percentages for the month. She has also entered her YTD
revenue and expense amounts. Help Aafreen complete her P&L by calculating her missing YTD percentages.

Income Statement, June 201X

June % YTD %
SALES
Food $55,200 82.5% $331,200
Liquor 4,450 6.7% 27,500
Beer 3,550 5.3% 20,500
Wine 3,700 5.5% 23,250
Total Sales $66,900 100.0% $402,450
COST OF SALES
Food $17,150 31.1% $101,750
Liquor 1,140 25.6% 6,400
Beer 875 24.6% 4,850
Wine 1,150 31.1% 8,750
Total Cost of Sales $20,315 30.4% $121,750
LABOR
Management $4,750 7.1% $28,500
Staff 13,525 20.2% 79,500
Employee Benefits 4,225 6.3% 23,750
Total Labor $22,500 33.6% $131,750
PRIME COST $42,815 64.0% $253,500
OTHER CONTROLLABLE EXPENSES
Direct Operating Expenses $3,450 5.2% $22,450
Music & Entertainment 275 0.4% 1,850
Marketing 1,150 1.7% 7,250
Utilities 1,850 2.8% 12,450
General & Administrative Expenses 2,950 4.4% 18,150
Repairs & Maintenance 950 1.4% 3,850
Total Other Controllable Expenses $10,625 15.9% $66,000
CONTROLLABLE INCOME $13,460 20.1% $82,950
NON-CONTROLLABLE EXPENSES
Occupancy Costs $5,900 8.8% $35,400
Equipment Leases 1,150 1.7% 6,900
Depreciation & Amortization 1,350 2.0% 8,500
Total Non-Controllable Expenses $8,400 12.6% $50,800
RESTAURANT OPERATING INCOME $5,060 7.6% $32,150

Chapter 9
Q3
Interest Expense 725 1.1% 4,350
INCOME BEFORE INCOME TAXES $4,335 6.5% $27,800
Income Taxes 1,735 2.6% 11,120
NET INCOME $2,600 3.9% $16,680

Chapter 9
Q3
Chapter 9, Question 4

Faye manages Faye’s Tea Room in a small suburban town. She sells gourmet food and a variety of
teas. This year, Faye increased her selling prices by 5 percent, and she increased her wages by 10
percent. Faye’s condensed P&L follows. Help her calculate her variance and variance percentage from
last year to this year. Use her adjusted sales and labor cost to provide a more accurate picture of her
performance this year.

Increase in Selling Prices

Increase in Wages

Faye's Condensed P & L

Adjusted Sales
and Labor (for
Last Year Last Year) This Year Variance
Sales $1,865,000 $2,315,000
Cost of Food 615,450 717,650
Cost of Labor 540,850 671,350
Other Expenses 428,950 486,150
Total Expenses
Profit

Chapter 9
Q4
Variance %

Chapter 9
Q4
Chapter 9, Question 5

5.a.
a. Rudolfo owns Rudolfo’s Italian Restaurante in the Little Italy section of New York City. He wants to
compare last year’s costs to this year’s costs on his food expense schedule to see how he performed in
each food category. Help Rudolfo complete his schedule.

Rudolfo's Food Expense Schedule

% of Food
Last Year Sales This Year
Food Sales $2,836,517 $3,087,564
Cost of Food Sold
Meats and Seafood $386,734 $445,982
Fruits and Vegetables 122,915 165,178
Dairy 71,951 52,858
Baked Goods 20,985 29,731
Other 323,778 303,927
Total Cost of Food Sold

5.b.
In addition to calculating the food cost percentage for each of his food categories, Rudolfo wishes to
calculate his inventory turnover for the year. Help Rudolfo complete his inventory turnover table below.

Rudolfo's Food Inventory Turnover

This Year
This Year Beginning Ending Average
Inventory Category Inventory Inventory Inventory Value
Meats and Seafood $21,476 $17,489
Fruits and Vegetables $1,708 $1,015
Dairy $772 $372
Baked Goods $160 $131
Other $10,538 $11,035
Total

Assume cost of food sold, part a., and cost of food consumed, part b., are the same for Rudolfo’s. Rudolfo’s inventory turnove
this year was 32 times. Did he meet his target? If not, what may have caused this?

Answer:

Chapter 9
Q5
 Assume cost of food sold, part a., and cost of food consumed, part b., are the same for Rudolfo’s. Rudolfo’s inventory turnove
this year was 32 times. Did he meet his target? If not, what may have caused this?

Answer:

Chapter 9
Q5
 % of Food
Sales

Cost of
Food Inventory
Consumed Turnover
$445,982
$165,178
$52,858
$29,731
$303,927

o’s. Rudolfo’s inventory turnover target for

Chapter 9
Q5
o’s. Rudolfo’s inventory turnover target for

Chapter 9
Q5
Chapter 9, Question 6

Jaymal is director of club operations for five military bases in Florida. He has just received year-end
income statements for each base. Information from the revenue and labor portion of those
statements is shown below. Jaymal wants to use the current year’s data to create next year’s
budget. Assume that Jaymal is happy with his labor productivity in each unit and that both wages
and revenue in each will increase 2 percent next year. Calculate how much Jaymal should budget
for revenue and labor in each unit. Also, calculate what Jaymal’s labor cost percentage will be for
each unit if he meets his budget. (Spreadsheet hint: Use the ROUND function to one decimal place
for Projected Labor Cost %.)

Projected increase in wages

Projected increase in revenues

This Year's Results Next Year's Budget

This Year's This Year's Projected Labor Projected
Location Labor Cost Revenue Cost Revenue
Pensacola $285,000 $980,500
Daytona $197,250 $720,000
Fort Myers $235,500 $850,250
Tampa $279,750 $921,750
Miami $1,190,250 $3,720,000

Chapter 9
Q6
ar's Budget
Projected
Labor Cost %

Chapter 9
Q6
Chapter 9, Question 7

Ron MacGruder is senior vice president of acquisitions for Yummy Foods. Yummy is a large multinational food
service company. It owns over 2,000 restaurants. Among its famous brands are a chain of pizza parlors, a
Mexican carryout group, a chain of fried chicken stores, and a large group of fried fish stores. Ron is constantly
on the lookout for growing food service concepts that could be purchased at a fair price and added to the Yummy
group. One such concept that is currently available for sale is a small but expanding group of upscale Thai
restaurants called Bow Thais. The current owners wish to sell the 17-unit chain and retire to Florida. They
proudly point to the fact that both their sales and profits have increased in each of the last three years. Revenue
has more than doubled this year compared to two years ago. Profits have risen from just $600,000 two years ago
to over $1,000,000 this year. In addition, the Bow Thais chain consisted of 6 units two years ago, 12 units last
year, and 17 units this year. Develop a summary P&L for each of Bow Thais’ last three years showing revenue,
expenses, and profit. Next compute a “per unit” revenue, expense, profit, and profit margin level for each of the
three years for which you have data.

No. of Revenue Expense

Revenue Expense Profit Units per Unit per Unit
2 Years Ago $6,500,000 $600,000
Last Year $9,900,000 $800,000
This Year $13,500,000 $1,010,000

Would you advise Ron to buy the company? Why or why not?

Answer:

Chapter 9
Q7
 Profit per Profit
Unit Margin %

Chapter 9
Q7
Chapter 9, Question 8

Basil Bakal is the newly appointed food and beverage director at Telco Industries. Telco creates and markets
software apps developed for use with iPods. The company has 500 employees and operates its own cafeteria
and executive dining room, where it daily offers free lunches to all employees. Basil’s employee cafeteria
serves between 375 and 425 lunches per day. Approximately 50 more meals per day are served in the
executive dining room. Basil has created his own modified version of a P&L for use in his operation. Calculate
the percentages of meals served in the employee cafeteria and executive dining room and the costs per meal
served, and then answer the questions that follow.

Telco Industries Food Services Department

Meals Served % of Total Meals
Last Year Served
NUMBER OF MEALS SERVED
Cafeteria 104,250
Executive Dining Room 12,150
Total Served
Total Cost $ Per Meal Cost $
COST OF SALES
Cafeteria $248,750
Executive Dining Room 48,450
Total Cost of Sales
LABOR
Management 73,332
Staff 171,108
Employee Benefits 61,110
401(k) Match 25,350
Total Labor
PRIME COST
OTHER CONTROLLABLE EXPENSES
Direct Operating Expenses 113,515
Utilities 96,000
General & Administrative Expenses 46,669
Repairs & Maintenance 21,510
Total Other Controllable Expenses

a. How much more did it cost (cost of sales per meal) Basil to serve a meal in the executive dining
room than it did in the employee cafeteria? Why do you think that would be so?

Answer:

b. Basil’s modified P&L combines all labor costs when calculating cost per meal served. Why do
you think he elected to not allocate labor costs between the two serving areas? How could he do
so?

Answer:
Chapter 9
Q8
c. Assume you were on the board of directors of Telco. How would decide how much more money
you should allocate to Basil’s area next year to account for rising food prices? Who would you
b. Basil’s modified P&L combines all labor costs when calculating cost per meal served. Why do
you think he elected to not allocate labor costs between the two serving areas? How could he do
so?

Answer:

c. Assume you were on the board of directors of Telco. How would decide how much more money
you should allocate to Basil’s area next year to account for rising food prices? Who would you
expect to provide you with the information you need to make an informed decision about the
appropriate size of the increase?

Answer:

Chapter 9
Q8
Chapter 9, Question 9

Lucir manages a German restaurant in a large western city. The restaurant’s owner wants to know how well
Lucir did this year at generating sales, controlling costs, and providing a profit. The owner promised Lucir
that he would give her a raise if she increased return on sales (profit margin) by at least 1 percent. Complete
Lucir’s P&L.

Lucir's P&L
Last Year % This Year %
SALES
Food $2,647,415 $2,675,889
Beverage 498,119 965,660
Total Sales
COST OF SALES
Food $855,104 $1,074,420
Beverages 104,005 115,879
Total Cost of Sales
LABOR
Management $192,330 $204,227
Staff 576,989 581,260
Employee Benefits 118,996 122,994
Total Labor
PRIME COST
OTHER CONTROLLABLE EXPENSES
Direct Operating Expenses $146,669 $145,357
Music & Entertainment 2,767 8,386
Marketing 52,579 69,883
Utilities 88,555 97,836
Administrative & General Expenses 80,252 78,269
Repairs & Maintenance 41,510 39,135
Total Other Controllable Expenses
CONTROLLABLE INCOME
NON-CONTROLLABLE EXPENSES
Occupancy Costs $144,000 $132,000
Equipment Leases 0 0
Depreciation & Amortization 49,812 61,498
Total Non-Controllable Expenses
RESTAURANT OPERATING INCOME
Interest Expense 104,100 93,378
INCOME BEFORE INCOME TAXES
Income Taxes 235,146 343,150

Chapter 9
Q9
NET INCOME

Should Lucir receive a raise?

Answer:

Chapter 9
Q9
Chapter 9, Question 10

In this chapter you learned that a P&L statement is used to report revenue, expense, and
profit. In many cases, noncommercial foodservice operators, such as those responsible for
schools, colleges and universities, and healthcare facilities, including retirement complexes,
nursing homes, as well as hospitals, are severely restricted in their ability to increase their
revenues. This is because the operating budgets of such facilities are fixed annually based on
the number of meals estimated to be served. Also, such facilities do not seek to earn a “profit”
in the traditional sense of the word. In these noncommercial operations, however, the
preparation and thoughtful analysis of monthly P&L statements is still considered essential.
Why do you believe this is so?

Answer:

Chapter 9
Q 10