Cabes Truffles is a gourmet dessert restaurant in Burlington . Cynthia Cabe , the sole proprietor, expanded to a second location in Lexington, 3 years ago. Recently, Cabe decided to enroll in a PhD program and retire from active management of the individual restaurants but continues to oversee the entire company. She hired a manager for each restaurant. In 20X3, each had sales of $1,100,000. The Lexington restaurant is still pricing lower than the Burlington restaurant to establish a customer base. Variable expenses run 60% of sales for the Burlington restaurant and 65% of sales for the Lexington restaurant. Each manager is responsible for the rent and some other fixed costs for his or her restaurant. These costs amounted to $135,000 for the Burlington restaurant and $85,000 for the one in Lexington. The difference is primarily due to lower rent in Lexington. In addition, several costs, such as advertising, legal services, accounting, and personnel services, were centralized. The managers had no control of these expenses, but some of them directly benefited the individual restaurants. Of the $370,000 cost in this category, $120,000 related to Burlington and $200,000 to Lexington, where most of the additional cost in Lexington is due to the cost of extra advertising to build up its customer base. The remaining $50,000 was general corporate overhead.

1. Prepare income statements for each restaurant and for the company as a whole. Use a format that allows easy assessment of each manager's performance and each restaurant's economic performance.

2. Using only the information given in this exercise do the following:

a. Evaluate each restaurant as an economic investment.

b. Evaluate each manager.

Begin by preparing the income statement for the company as a whole, then prepared the income statements for each restaurant. Company as a whole Revenues Variable costs Contribution margin Less: Fixed costs controllable by restaurant managers Contribution controllable by restaurant managers Less: Fixed cost controllable by others Contribution by restaurants Unallocated costs Operating income IL DIN