Terry Ray manages a hotel in an urban Midwestern city. He wants to use vertical analysis in order to evaluate his income statement (P&L). Complete the spreadsheet to help him evaluate his effectiveness as a manager.

Terry’s P&L Total Revenue ~ 5,100,350 3,000,000_|_ Payroll and Related Expenses 535,600

[Deparmentincome ‘|

[Payroll and Related Expenses | 895,200 |_|

[Other Expenses =| _—98,200 «| |

Department Income Beverage — Revenue a 560,000 Cost of Sales 81,510 iz Payroll and Related Expenses 96,590 Other Expenses 36,400 = Department Income Telecommunications — Revenue 14,000 Cost of Sales 30,550 Payroll and Related Expenses 9,750 Other Expenses 5,200 Department Income Other Operated Departments—Revenue 105,000 Cost of Sales 14,300 Payroll and Related Expenses 32,500 Other Expenses 11,700 Department Income Rentals and Other Income—Revenue 21,350 Cost of Sales 2,860 lo Payroll and Related Expenses 8,840 Other Expenses 1,950 |
Department Income Total Operated Department Income Undistributed Operating Expenses Administrative and General 245,050 Information Systems 64,350 Human Resources 105,300 Security 50,050 Franchise Fees 0 Transportation 60,450 Marketing 280,280 Property Operations and Maintenance 216,125 Utility Costs Total Undistributed Operating Expenses Gross Operating Profit 193,375 Rent, Property Taxes, and Insurance Sil 5O Depreciation and Amortization 227,500 Net Operating Income Interest 136,500 Income Before Income Taxes Income Taxes 491,528 Net Income

a. The owner gave Terry a goal of 65% total operated department income. Did Terry perform better or worse than this goal? By how much?

b. The owner also gave Terry a goal of 22% total undistributed operating expenses.
Did Terry perform better or worse than this goal? By how much?

c. Finally, the owner gave Terry a goal of 20% profit margin for the year. Did Terry perform better or worse than this goal? By how much?

d. If you answered that Terry did not meet his goal in question

c, what could he do to get his P&L in line with the owner’s goals?