MBA 6100 Case Study 1 Summer 2019

As a recently hired MBA intern, you are working in a consulting capacity to provide an analysis for Benevento's Italian Restaurant. A financial income Statement is presented below:

Sales $2,741,168

Cost of sales (all variable)

Gross Margin $1,158,685

Operating expenses:

Variable $282,423

Fixed $217,094

Total operating expenses: $499,516

Administative expenses (all fixed) $573,405

Net operating income $85,763

This income statement presents the sales, expenses and pre-tax operating income for a local eating facility. At Benevento's, the average meal cost for lunches and dinners are $20 and $40 respectively. Benevento's serves both lunch and dinner 300 days per year and serves twice as many lunches as dinners. As the MBA intern you are to prepare a managerial accounting focused report to the owners ofBenevento's Italian Restaurant, to include the following:

1. Prepare a contribution margin income statement using the given financial data. Use the following format:

Use the following format:

Total Per Unit

Sales

Variable costs

Cost of sales

Operating

Total variable costs

Contribution margin

Fixed costs

Operating

Administrative

Total fixed costs

Net operating income

2. Compute the break-even volume of the number of lunches and dinners. Assume that the CM% for each meal category is the same as the average CM% as calculated in #1. Hint: To solve a break even sales mix, use the horizontal formula:

Net operating income = ($Sales $Variable costs) $fixed costs

Net operating income = $CM $fixed costs

At Breakeven, NOI = $0

Therefore, $CM = $ Fixed costs

Now solve for the unit $CM for each item. Let X be the number of dinners, 2X the number of lunches. $CM is the combined total of the $CM for dinners, and the $CM for lunches.

3. Using the CM income statement format, verify that your calculated break-even volume for lunches and dinners results in a NOI of zero (hint: in your prepared CM statement from #1, breakout the Sales dollars

into subcategories lunch and dinner as shown below, using the values of X for in the # of meals cells). Present the entire CM statement at the BE level.

4. The owner of the restaurant is thinking of increasing sales through additional advertising, which she will incur as an administrative expense. The proposed additional advertising campaign will cost $25,000. She anticipates that the additional advertising expense will result in an additional 6 lunches and 3 dinners on average, per day. Illustrate the impact on NOI assuming the changes above (hint: show a revised CM statement). Hint: for this type of what-if, compare the additional contribution margin impact on NOI given the change in units and change in fixed costs.

5. In order to increase NOI, the owner of the restaurant is considering adjustments to the quality of food ingredients currently used. Rather than using premium ingredients, use of average quality ingredients would reduce the cost of food by 15%. The owner proposes to not change the current meal pricing. As the consultant, prepare a memo to the owner that presents the pros and cons of this change in operations. What are the potential impacts on revenue, costs, and net operating income may result from this change? The owner does not want to see a decrease in net operating income. Could the owner make this change and absorb a decrease in customers, and how would you demonstrate numerically to support your analysis? What other factors or consequences of this decision should the owner consider besides the financial impact of the change?

Hint: Wrte a memo to Mr. Joseph Bono, owner of Benevento's restaurant in good format (use a Word Document). This qualitative analysis is to be thorough. Expect to present 400 words or so, and support your analysis using calculated or given accounting data.