Gilman's Caf is a popular restaurant in a local tourist town. Sarah Gilman, who opened the restaurant five years ago, has seen it grow steadily. Currently, Gilman's is only open for dinner, but many of her regular customers have been asking Sarah to consider opening for lunch as well. Sarah has been talking to her accountant about the financial impact of the expanded services on the overall business. She knew that the caf did not make much money and she was concerned that the new business might be too risky. The accountant asked her for her best estimates on the impact of the new business on revenues and costs. She had been thinking about this for some time and estimates that revenues would grow by about 25 percent. Food costs would increase by about 40 percent and labor costs by about 20 percent. Her rent would not change, but utilities would increase by about 25 percent. Other costs would increase by 15 percent. The salary she pays herself as manager of the caf would not change. A few days later, her accountant stops by with the following estimated income statement assuming she adds the lunch business.

Answer:

1.an income statement.

Gilman's Cafe

Annual Income Statement

Lunch and Dinner Service Dinner Service Only

Sales revenue

Costs

Food cost

Labor

Rent

Utilities

Other costs

Manager's Salary

Total costs$

Operating profit (loss)

a-2.Based on the financial impact, should Sarah open the caf for lunch?

• b.Are there other factors she should consider?