CASE 3 133 For each of the three items, calculate trend percentages. Using the results from this analysis, discuss whether the situation developing for the cater- ing service is desirable. P3.13 Assume that appropriate general trend index numbers for the catering service sales revenue and its food costs were as follows for the six peri- ods referred to in P3.12. Sales Revenue Cost Period Index Index 1 107 2 125 3 121 131 130 137 5 144 6 147 151 121 114 4 144 Convert the historic dollars of sales revenue and the historic dollars of cost of sales in P3.12 to current dollars and discuss the results. P3.14 A motel had the following annual sales revenue and average room rate figures for the last five years. During this five-year period, there were no changes in the number or type of rooms available, and the type of clien- tele remained the same. Year 1 2 3 4 5 Annual Sales Revenue $2,205,952 $2,254,695 $2,299,526 $2,334,484 $2,380,856 Average Room Rate $85.00 $88.60 $89.70 $91.40 $93.80 Prepare index numbers from the average room rates. Use the index num- bers identified to convert the annual sales revenue to current dollars. Af- ter the conversion is completed, comment on the results of your analysis. CASE 3 a. With reference to the financial statements prepared for the 4C Company for Year 2007 (see Case 2), prepare a common-size vertical statement. The local restaurant association provided Charlie with statistical data that are applica- CHAPTER 3 ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS ble for a table service, family-oriented, lunch and dinner restaurant similar to his (see below). The data provide percentage ranges for typical elements of an income statement. Comment on how the operating income (before tax) of the 4C restaurant compares to similar restaurants. Is the comparison valid? Explain. Low (%) 68.0 16.0 High (%) 84.0 33.0 100% 30.0% 17.0% 35.0% 62.0% 40.0% 33.0% 44.0% 71.0% Sales Revenue Food operations Beverage operations Total Sales Revenue Cost of sales, food Cost of sales, beverages Total Cost of Sales Gross Margin Operating Expenses Wages expense Salaries expense Employee benefits expense Employee meals expense Laundry, linen, uniforms expense Replacements expense Services supplies expense Menus, printing expense Miscellaneous expense Entertainment expense Advertising, promotion expense Utilities expense Administrative expense Repairs, maintenance expense Rent expense Property taxes expense Insurance expense Interest expense Depreciation expense Franchise expense (if applicable) Total Operating Expenses Operating Income (before tax) 26.0% 2.0% 3.0% 1.0% 1.5% 0.5% 1.0% 0.3% 0.3% 0.5% 0.7% 2.0% 3.0% 1.0% 4.5% 0.5% 0.8% 0.3% 2.0% 3.0% 51.5% 1.5% 31.0% 6.0% 5.0% 2.0% 2.0% 1.0% 2.0% 0.5% 0.5% 2.0% 2.5% 4.0% 6.0% 2.0% 7.0% 1.5% 1.0% 1.0% 2.8% 8.0% 62.5% 12.0% b. The guest count (covers) for the 4C restaurant for the year was 66,612. De- termine the overall average check (sales revenue) for food and beverages. In your opinion, does the average check for food and beverages appear reason- able for a budget-conscious, family-type table service restaurant? CASE 3 135 C. Calculate the cost percentages for food cost, beverage cost, and the total cost of sales as a percentage of total sales revenue. How does cost of sales for food, beverages, and the total cost of sales compare to the ranges provided for a restaurant of this type? d. Given the choice, would it be better to have a higher or lower percentage of beverage sales revenue compared to food sales revenue? CASE 3 133 For each of the three items, calculate trend percentages. Using the results from this analysis, discuss whether the situation developing for the cater- ing service is desirable. P3.13 Assume that appropriate general trend index numbers for the catering service sales revenue and its food costs were as follows for the six peri- ods referred to in P3.12. Sales Revenue Cost Period Index Index 1 107 2 125 3 121 131 130 137 5 144 6 147 151 121 114 4 144 Convert the historic dollars of sales revenue and the historic dollars of cost of sales in P3.12 to current dollars and discuss the results. P3.14 A motel had the following annual sales revenue and average room rate figures for the last five years. During this five-year period, there were no changes in the number or type of rooms available, and the type of clien- tele remained the same. Year 1 2 3 4 5 Annual Sales Revenue $2,205,952 $2,254,695 $2,299,526 $2,334,484 $2,380,856 Average Room Rate $85.00 $88.60 $89.70 $91.40 $93.80 Prepare index numbers from the average room rates. Use the index num- bers identified to convert the annual sales revenue to current dollars. Af- ter the conversion is completed, comment on the results of your analysis. CASE 3 a. With reference to the financial statements prepared for the 4C Company for Year 2007 (see Case 2), prepare a common-size vertical statement. The local restaurant association provided Charlie with statistical data that are applica- CHAPTER 3 ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS ble for a table service, family-oriented, lunch and dinner restaurant similar to his (see below). The data provide percentage ranges for typical elements of an income statement. Comment on how the operating income (before tax) of the 4C restaurant compares to similar restaurants. Is the comparison valid? Explain. Low (%) 68.0 16.0 High (%) 84.0 33.0 100% 30.0% 17.0% 35.0% 62.0% 40.0% 33.0% 44.0% 71.0% Sales Revenue Food operations Beverage operations Total Sales Revenue Cost of sales, food Cost of sales, beverages Total Cost of Sales Gross Margin Operating Expenses Wages expense Salaries expense Employee benefits expense Employee meals expense Laundry, linen, uniforms expense Replacements expense Services supplies expense Menus, printing expense Miscellaneous expense Entertainment expense Advertising, promotion expense Utilities expense Administrative expense Repairs, maintenance expense Rent expense Property taxes expense Insurance expense Interest expense Depreciation expense Franchise expense (if applicable) Total Operating Expenses Operating Income (before tax) 26.0% 2.0% 3.0% 1.0% 1.5% 0.5% 1.0% 0.3% 0.3% 0.5% 0.7% 2.0% 3.0% 1.0% 4.5% 0.5% 0.8% 0.3% 2.0% 3.0% 51.5% 1.5% 31.0% 6.0% 5.0% 2.0% 2.0% 1.0% 2.0% 0.5% 0.5% 2.0% 2.5% 4.0% 6.0% 2.0% 7.0% 1.5% 1.0% 1.0% 2.8% 8.0% 62.5% 12.0% b. The guest count (covers) for the 4C restaurant for the year was 66,612. De- termine the overall average check (sales revenue) for food and beverages. In your opinion, does the average check for food and beverages appear reason- able for a budget-conscious, family-type table service restaurant? CASE 3 135 C. Calculate the cost percentages for food cost, beverage cost, and the total cost of sales as a percentage of total sales revenue. How does cost of sales for food, beverages, and the total cost of sales compare to the ranges provided for a restaurant of this type? d. Given the choice, would it be better to have a higher or lower percentage of beverage sales revenue compared to food sales revenue