Watson Walbert has been the Executive Chef at the Altina Restaurant for five years.

Altina Restaurant is located in a “dry” area (alcoholic beverage sales are illegal), so it only sells food. In the last five years, Watson has worked for several general managers.

The new general manager, however, is a real stickler for staying in budget, and at the moment Watson is a bit worried. According to November's spreadsheet the general manager sent Watson, he had exceeded his food cost budget significantly. He felt his team had performed well, but according to the memo he got from the general manager, he still had to explain his department's “sub-par” performance to the general manager in person. Watson is confused, though. Although he spent more in food cost, he also sold more covers, so his food cost should be higher than originally budgeted! Watson decides to calculate a flexible budget based on his actual number of covers sold to see if he has, indeed, had cost control problems in any of his line items, especially food cost. Help him calculate his flexible budget, and then answer the questions that follow.

November 2010 original budget number of covers = 18,000 November 2010 actual covers sold = 21,000 ALTINA RESTAURANT FLEXIBLE BUDGET FOR NOVEMBER 2010 Actual check average =P aii avenalwil NUMBER OF COVERS:
SALES: FOOD LESS VARIABLE COSTS:
Food Cost Salaries, Wages, and Benefits Telephone Marketing Utilities Repairs and Maintenance Contribution Margin LESS FIXED COSTS:
Salaries, Wages, and Benefits Telephone Marketing Utilities Repairs and Maintenance Administrative and General Depreciation Occupancy Costs Income Before Taxes Taxes (40%)
Net Income

a. What was Watson's actual check average? Was this higher or lower than the Variable Dollars Original Flexible per Cover Budget Budget Actual Variance F/U 18,000 21,000 21,000 $9.00 $162,000 (oe $200,000 aay ee $3.12 56,160 60,500 $1225 22,500 22,000 $0.02 360 575 $0.08 1,440 1,750 $0.14 2,520 2,500 $0.11 1,980 2,600 $4.28 77,040 110,075 28,800 28,800 28,800 0 360 360 360 0 5,400 5,400 5,400 0 3,600 3,600 3,600 0)
150 150 150 0 2,000 2,000 2,000 0 1,000 1,000 1,000 (0)
5,000 5,000 5,000 (0)
30,730 63,765 12,292 25,506 18,438 38,259 original budget and flexible budget check average?

b. Were Watson's actual food sales higher or lower than the flexible budget? By how much? Was this favorable or unfavorable?

. Was Watson's actual food cost higher or lower than the original budget? Why do you think this is so?
. Was Watson's actual food cost higher or lower than the flexible budget? By how much? Was this favorable or unfavorable? How can Watson use this information in his report to his general manager?
. Were Watson’s variable salaries, wages, and benefits higher or lower than the original budget?
. Were Watson's variable salaries, wages, and benefits higher or lower than the flexible budget? By looking at both the original budget and the flexible budget, what conclusion can you draw about Watson's ability to control his labor costs?
. Was Watson’s actual net income higher or lower than the flexible budget? By how much? Was this favorable or unfavorable?
. Overall, how do you think Watson is doing at meeting the budget goals set by the general manager? How should he respond to his general manager's claim that his department is operating at a “sub-par” performance level?