Ms Ruth Boaz owns and operates a restaurant (RB Restaurant) located in Melbourne CBD. Prior to starting her own business, Ms Boaz has accumulated rich education and work experience. She has completed a diploma in Hospitality and Culinary Arts. She also holds a Bachelors degree in restaurant management with many years of experience working in various restaurants as a chef and assistant manager. RB restaurant began operations in mid-2019. Ms Boaz has performed a number of tasks to bring her business into operation by creating and developing a menu, and conducting effective marketing activity to kick start the business. The restaurant is family owned and her siblings hold some administrative roles. She also hired few casual employees that are rostered to work some days during normal operating hours of the business. The business is conveniently located near work places and shops where many people frequently visit for shopping and to dine. The business experienced an inspiring start and things went really well. Diners loved the quality of food served by the restaurant. RB Restaurant has prepared initial budget amounts to guide its operations during 2019. Monthly and annual budgets are prepared based on the following estimates.

Description of cost item Amount ($) Cost behaviour

Kitchen equipment and Rent 6,200 per month Fixed

Professional services 4,600 for two months Fixed

Insurance 2,000 for two months Fixed

Licenses (reservations, Point of Sale [POS] systems, etc.) 400 per month Fixed

Labour costs 7,340 per month Mixed (50% VC)

Utilities 1,200 per month Mixed (60% VC)

Inventory (food ingredients) 19,700 per month Variable

Miscellaneous expenses 800 per month Mixed (40% VC)

RB Restaurant has presented budget data for July 2019 in the table shown below. There are various types of food items under each type of food category (or group). The price per dish is an average for each food category. Also, variable cost per dish represents average cost for each food category. Detailed information of budgeted volume, price and cost for each menu category are given in the following table.

Description Salads (S) Side dishes (SD) Legumes (L) Meat (M)

Sales volume (in dishes) 280 390 360 500

Menu price per dish $15 $18 $20 $26

Variable cost per dish $10 $15 $16 $20

The restaurants menu classifies food items into four groups: (i) Salads (S) that include leafy greens, raw or cooked vegetables that have high energy density; (ii) Side dishes (SD) that include grains and derivatives served as whole, refined or tubers; (iii) Legumes (L) that include vegetables with or without meat; and (iv) Meat (M) is a high protein food that include seafood, lean meats and other high-protein foods. Restaurants are generally considered as high risk business in the sense that they are required to follow strict food safety standards applicable for food preparing, serving and storing. Food items can be easily contaminated and can cause numerous health problems. Food items and ingredients are also required to meet defined levels of temperature both during storage and preparation in order to maintain quality standards. A restaurant is a business entity whose primary goal is to earn profit by serving quality food at a reasonable price. Therefore, it is important to manage financial viability of the business at all times so that it stays afloat. Effective management of the business would require planning and exercising good measures of cost control to attain profitability levels when sales drops at times. Ms Ruth Boaz has recently approached CIC Higher Education expressing her desire to give students some work experience in the form of internship. The internship program requires that selected students would join the restaurant and work with the finance person for three weeks. The main task of students includes assessing financial viability of the business, to investigate how the business is operating, checking profitability of each food category and suggest ways of improving profitability of the business during the post Covid-19 recovery period. The role also requires students to suggest better ways of conducting business by enhancing revenue and managing costs of the business. Your group has been selected to join the business and work as a consultant during the internship period. Particularly, Ms Ruth Boaz has asked you specific questions that you need to answer as a group and some specific questions that each member of the team should conduct individual critical analysis and provide sound solutions or suggestions that the business could consider to tackle problems and improve its performance.

Required:

Part-A: Ms Ruth Boaz has requested you to investigate the following questions, as part of the consultancy work, to offer RB Restaurant your recommended solution to the business problems by working as a team. (When answering, consider each requirement independently and show details of your computations and explain the results). All questions under this part will be completed in group and your answer be presented in one file and should be uploaded on to Moodle by the due date.

1. Prepare contribution approach income statement for RB Restaurant and determine the total budgeted net profit for the second-half of year 2019. The income statement should contain separate columns for each menu type and present the total in a separate column. Assume that fixed cost is incurred for all food items prepared by RB Restaurant and has to be included in the total column only. Do not spread fixed cost to the food items in the menu. (4 Marks)

Part-B: Critical thinking and decision making (5 Marks)

Ms Ruth Boaz has highlighted the challenges that the restaurant is currently facing. Things are gradually coming back to normal during 2021. Sales volume for each food category is expected to reach 90% compared to that of 2019. Costs of professional services are expected to rise by 10% while that of licenses are reduced by 5% in 2021. Ms Boaz wants you to conduct research and present sound recommendations for the following challenges.

1. What is the expected profit for the restaurant for the year 2021 given the above stated changes in the market? Please present comparative profitability analysis by food category and in total and explain the result of your analysis. 2 Marks

2. Ms Boaz is giving priority to its profitability goal and is thinking of ways how to increase sales and reduce costs of the business. She asked you to assist her achieve this profitability goal by conducting further research in the restaurant business and present your recommendations. Your answer should include options that Ms Boaz should consider and the necessary steps that she has to take in order to boost sales and reduce cost of the business. 3 Marks