5. 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 the November's spreadsheet the general manager sent Watson, he had exceeded his food cost budget significantly. He felt that his team had performed well, but according to the memo he got from the owner, he still had to explain his department's subpar performance to the owner 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. (Test your Skills 7)

Altina Restaurant Flexible Budget for November

November original budget number of covers		18,000	November original budget check average			$9.00
November actual number of covers		21,000	November actual check average			$
	Variable Dollars Per Cover	Original Budget	Flexible Budget	Actual	Variance	Favorable	Unfavorable
NUMBER OF COVERS		18,000	21,000	21,000
Sales: Food	$9.00	$162,000	$	$200,000	$
LESS VARIABLE COSTS
Food Cost	$3.12	$56,160	$	$60,500	$
Management, Staff, and Benefits	$1.25	$22,500	$	$22,000	$
Telephone	$0.02	$360	$	$575	$
Marketing	$0.08	$1,440	$	$1,750	$
Utilities	$0.14	$2,520	$	$2,500	$
Repairs and Maintenance	$0.11	$1,980	$	$2,600	$
Contribution Margin	$4.28	$77,040	$	$110,075	$
LESS FIXED COSTS
Management, Staff, and Benefits		$28,800	$28,800	$28,800	0
Telephone		$360	$360	$360	0
Marketing		$5,400	$5,400	$5,400	0
Utilities		$3,600	$3,600	$3,600	0
Repairs and Maintenance		$150	$150	$150	0
Administrative and General		$2,000	$2,000	$2,000	0
Depreciation		$1,000	$1,000	$1,000	0
Occupancy Costs		$5,000	$5,000	$5,000	0
INCOME BEFORE TAXES		$30,730	$	$63,765	$
Tax Rate	40%	$12,292	$	$25,506	$
NET INCOME		$18,438	$	$38,259	$

a. What was Watsons actual check average?

b. Were Watsons actual food sales higher or lower than the flexible budget?

c. Was Watsons actual food cost higher or lower than the original budget? Why do you think this is so?

d. Was Watsons actual food cost higher or lower than the flexible budget? By how much? Was this favorable or unfavorable?

e. Were Watsons variable management, staff, and benefits higher or lower than the original budget?

f. Were Watsons variable management, staff, 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 Watsons ability to control his labor costs?

g. Was Watsons actual net income higher or lower than the flexible budget?

h. Overall, how do you think Watson is doing at meeting the budget goals set by the operations owner? How should he respond to the owners initial claim that his department is operating at a sub-par performance level?