Reconciliation of actual and budgeted profit (including overhead variances) A local restaurant has been examining the profitability
Question:
Reconciliation of actual and budgeted profit (including overhead variances)
A local restaurant has been examining the profitability of its set menu. At the beginning of the year the selling price was based on the following predicted costs:
The selling price was set at £7.50, which produced an overall gross profit of 60%.
During October the number of set menus sold was 860 instead of the 750 budgeted: this increase was achieved by reducing the selling price to £7.00. During the same period an analysis of the direct costs incurred showed:
There was no stock of ingredients at the beginning or end of the month.
Required:
(a) Calculate the budgeted profit for the month of October. (2 marks)
(b) Calculate the actual profit for the month of October. (3 marks)
(c) Prepare a statement which reconciles your answers to
(a) and
(b) above, showing the variances in as much detail as possible.
(d) Prepare a report, addressed to the restaurant manager, which identifies the two most significant variances, and comments on their possible causes.
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