Create an income statement and a cash flow statement assuming that the coronavirus will close all of Nathans restaurants, and revenue falls to zero. For this project, you are to assume that all the revenue for Nathans comes from these restaurants. Remember that the different types of costs will not react in the same way to this drop in revenue.

Fixed costs will not decrease at all. As an example, depreciation on the restaurants will not go away even if sales go to zero.

Variable costs, on the other hand, will go away. An example here would be the cost of the hot dogs themselves. If there are no sales, then there will be no need to buy additional buns and franks. Do an internet search to see approximately how much of the cost of goods sold would be the variable cost of food.

Mixed costs are more problematic. Consider utilities. If the stores close, there will be no need to run the air conditioning in the stores. They may have to run the heating system to keep pipes from freezing, and they will have to keep lights on in the parking lots, and a few of the interior lights will be left on for security. Some labor will be laid off, but the workers will likely receive unemployment benefits. Most managers will be retained because it would be impossible to replace them when the business opens back up.

Remember, it is impossible to calculate exactly how amounts will change from the information given. However, you should be able to make a well-informed estimate of how each line on the Statement of Earnings and the Cash Flow Statement will change. The most important part of the assignment is that you defend your estimates and provide a reasonable basis for those estimates. Would it be OK to talk to someone in the food industry about this? Absolutely!

Your team should then write a report, as if it were addressed to an executive. Attach to that report a copy of your revised statements. Remember that I will be grading based on your justification of the numbers, not on the numbers themselves. As with most cases in business, there is no correct answer. Your job is to convince me that your estimates are the best.