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Chapter 9: Discussion Questions (Pg 404-405) 2. What are some of the purposes of budgeting? 4. Explain the difference between long- and short-term budgeting. 9. A cocktail lounge had May sales revenue of $40,000, budgeted revenue was $42,000. Create three questions to analyze the variance. 10. What factors need to be considered to project breakfast sales for a hotel coffee shop? 12. List the four items which must be multiplied to forecast total annual dinner food sales at a restaurant. Chapter 9: Exercises (Pg 405-407) E9.1 A restaurant has 100 seats with an average turnover of 2.5, and an average check of $14.75. If the restaurant is open 260 days/year, what is the annual sales revenue? Number of seats Seat turnover/day Average check Days open per year Estimated annual revenue 100 2.5 $14.75 260 Annual sales revenue formula: E9.2 A motel has 80 rooms, an occupancy rate of 62% and an average room rate of $74.00. What is the estimated sales revenue for the month of April? Number of rooms Occupancy rate Average room rate Days in April Estimated April revenue 80 62% $74.00 30 Monthly sales revenue formula: E9.3 A motel budgets 8,000 rooms sold at a price of $82.00/room. Actual sales were 8,480 rooms at $77.00 each. Compute the price, volume and budget variances and indicate whether they are favorable or unfavorable. Volume Price Budget Revenue Actual Revenue Price Variance Volume Variance Revenue Budget Variance E9.4 A hotel budgets 6,400 rooms sold and housekeeping costs at $4.90/room. Actual sales were 6,250 rooms and actual costs were $4.40 per room. Compute the cost, volume and budget variances and indicate whether they are favorable or unfavorable. Volume Cost Variance Cost Volume Variance Budget Cost Actual Cost Cost Budget Variance E9.6 A motel has 45 rooms, an occupancy rate of 76% and an average room rate of $58.00. Fixed costs are $480,000 and the variable cost per room sold is $8.00. What is the estimated annual sales revenue and operating income? Number of rooms Occupancy.rate Average room rate Days open per year Estimated revenue Fixed costs Variable cost/room sold Total variable costs Operating income 45 76% $58.00 365 $480,000 $8.00 Annual variable cost formula: Operating income formula: E9.7 An 80 seat coffee shop is open 365 days per year. What is the estimated annual sales revenue given the turnover and average check per meal data below? Breakfast Lunch Dinner Total projected revenue Seats 80 80 80 Turnover 2.50 1.75 2.75 E9.10 A restaurant has budgeted sales of $912,000. Variable costs are 72% of sales and fixed costs are $102,000. Calculate total variable costs, gross margin and operating income. Sales Variable cost rate Total variable costs $912,000 72% Gross margin Fixed costs Operating income $102,000 an average check of $14.75. If ue? e room rate of $74.00. What is tual sales were 8,480 rooms at ndicate whether they are Variance Fav/Unfav? Variance Fav/Unfav? 4.90/room. Actual sales were st, volume and budget variances Variance Fav/Unfav? Variance Fav/Unfav? e room rate of $58.00. Fixed at is the estimated annual sales stimated annual sales revenue Avg check $7.80 $8.75 $11.25 re 72% of sales and fixed costs ting income. Days open 365 365 365 Annual revenue Chapter 9: Problem 9.1 (Pg 407) P9.1 A motel has 40 rooms. During June average room rate is $80, occupancy is 74%. In July room rates increase by 10% and occupancy is 84%. In August rates are the same as July but occupancy is 92%. Calculate revenue each month. Number of units Average room rate June Days in June Occupancy rate June Estimated revenue June Average room rate July Days in July Occupancy rate July Estimated revenue July Average room rate August Days in August Occupancy rate August Estimated revenue August 40 $80.00 74% 84% 92% Chapter 9: Problem 9.2 (Pg 407) P9.2 As manager of a 60 room motel you must prepare an annual budget. Occupancy will be 74%, average room rate is $84, variable cost per room sold is $8 and annual fixed costs are $825,000. Prepare the operating forecast and income statement below. Number of rooms Occupancy Days open Average rate Variable cost/room Annual fixed cost Annual rooms sold Revenue Variable cost Fixed cost Operating income 60 74% 365 $84.00 $8.00 $825,000 Chapter 9: Problem 9.5 (Pg 408) P9.5 Buff's Buffet wants a flexible budget prepared for three revenue levels: $800,000, $900,000 and $1 million. Variable costs include Food @ 38%, Labor @ 28% and Other @ 10%. Fixed costs include Salaries @ $52,000 and Other @ $120,000. Income tax rate is 29%. Prepare the three budgets. Revenue level Food cost Labor cost Other variable costs Total Variable Cost Contribution Margin Salaries Other fixed costs Total Fixed Cost Operating Income Income tax Net income $800,000 $900,000 38% 28% 10% $52,000 $120,000 29% Comment on the results, especially the change in income compared to sales. Using the Total Fixed Cost and the Variable Cost %, calculate the Break-Even Revenue level: Total Fixed Cost Total Variable Cost % Break-Even Revenue els: $800,000, $900,000 and @ 10%. Fixed costs include are the three budgets. $1,000,000 ales. Even Revenue level: Chapter 9: Problem 9.6 (Pg 408) 9.6 A resort hotel's dining room is fully dependent upon guests for its sales. The hotel has 150 rooms and 80% occupancy in June. Each occupied room averages 3 guests. The dining room serves 95% of guests at breakfast, 25% at lunch and 75% at dinner. The dining room is open every day for all meals and check averages are $7.50 for breakfast, $12.50 for lunch, $25.20 for dinner. Project dining room revenue by meal and in total for June. Number of rooms Occupancy rate Days in June Rooms occupied in June Average guests per room Total guests Dining room revenue Check average Guests dining Revenue 150 80% 3 Breakfast $7.50 95% Lunch $12.50 25% Dinner $25.20 75% Total Chapter 9: Problem 9.8 (Pg 410) 9.8 The owner of a restaurant is considering two alternatives to improve operating results. The first alternative re from 42% to 37% by improved purchasing and reduced portions. No other changes. The second alternative also 37% but also spends $2,000 on advertising to increase food and beverage sales by 20%. Extra customers will ca increase in these categories: $2,000 in wages, $800 in supplies, $200 in administrative, $300 in repairs and $100 i the alternative projections. Current Sales - Food Sales - Beverage Total Sales $40,000 10,000 $50,000 Cost of Sales - Food Cost of Sales - Beverage Total Cost of Sales 16,800 3,000 $19,800 Gross Margin $30,200 Operating Expenses Wages Supplies Administrative & General Advertising & Promo Repair Utilities Depreciation Interest Total Expenses 13,600 4,000 2,600 1,800 900 1,300 700 600 $25,500 Operating Income Alternative I $4,700 Advise the owner on which alternative to select and why. Alternative II $40,000 10,000 13,600 4,000 2,600 1,800 900 1,300 700 600 $25,500 700 600 ing results. The first alternative reduces food costs nges. The second alternative also cuts food costs to s by 20%. Extra customers will cause costs to strative, $300 in repairs and $100 in utilities. Prepare Alternative I 37% 30% Alternative II 20% 20% Added sales Added sales 37% 30% Cost % Cost % $2,000 $800 $200 $2,000 $300 $100 Added expense Added expense Added expense Added expense Added expense Added expense Chapter 9: Problem 9.11 (Pg 412-413) 9.11 Prepare an operating budget for a 100 room motel with a 64% occupancy and $72.00 ADR. It has a 65 seat co per week for all meals, a 75 seat dining room open 6 days per week for lunch and dinner only and a 90 seat cockt per year which serves 20 food orders @ $8.50 per meal per day. Beverage sales are $5,250 per cocktail lounge se combined lunch/dinner sales in the coffee shop and 25% of the combined lunch/dinner sales in the dining room. for food, 32% for beverages, Note that for every 16 rooms occupied each day one housekeeping shift @ $8.50/ho cost rates and fixed costs are listed in the table. Prepare a contributory income statement for each revenue cent consolidated income statement which included undistributed indirect expenses to arrive at EBITDA for the entire Computation of room division revenue Number of rooms Occupancy rate Average room rate Days open per year Room sold Rooms revenue 100 64% $72.00 365 Computation of room division contributory income Rooms revenue Fixed wages Housekeeping wages Total wages Benefits (12% of wages) Linen (6% of rooms revenue) Supplies (3% of rooms revenue) Total rooms cost Rooms contributory income $326,900 Computation of dining room food revenue Check average Turnover Days (6 days/week, 52 weeks/yr) Seats Total dining room revenue Computation of coffee shop food revenue Lunch $8.25 1.50 75 Check average Turnover Days (365/year) Seats Total coffee shop revenue Breakfast $5.75 1.00 Lunch $7.75 1.50 65 65 Computation of cocktail lounge food revenue Check average Orders per day Days open per year Total cocktail lounge food revenue $8.50 20 310 Computation of contributory income for food Revenue Dining room food revenue Coffee shop food revenue Cocktail lounge food revenue Total food revenue Cost for Food Food cost 35% Payroll 45% Laundry 2% Supplies 5% Other costs 2% Total operating cost Food contributory income Computation of beverage revenue Cocktail lounge seats $5,250 per cocktail seat Coffee shop (15% of lunch+dinner) Dining room (25% of lunch+dinner) Total beverage revenue Computation of contributory income for beverage 90 Beverage revenue Liquor cost 32% Payroll 25% Supplies 5% Total costs Beverage contributory income Overall contributory income statement Contributory income Room Food Beverage Total contributory income Fixed costs Administrative Marketing Utilities Operations & Maintenance Insurance Property taxes Total fixed costs EBITDA $156,800 147,600 58,900 52,400 15,300 82,100 cy and $72.00 ADR. It has a 65 seat coffee shop open 7 days h and dinner only and a 90 seat cocktail lounge open 310 days ales are $5,250 per cocktail lounge seat and 15% of the nch/dinner sales in the dining room. Variable costs are 35% y one housekeeping shift @ $8.50/hour is required. All variable ome statement for each revenue center and then prepare a ses to arrive at EBITDA for the entire business. Housekeeping cost formula: Dinner $14.00 1.00 75 Total Dinner $9.95 1.00 Breaks $1.75 6.00 65 65 Total