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9.59 Yummy Burgers R Us operates a store in Melbourne City, and the following is its average monthly income statement 50 000 15 000 65 000 25 000 3000 28 000 37 000 Revenue Food Beverages Cost of sales Food (50% of revenue) Beverages (20% of revenue) Gross profit Operating expenses Wages Operating supplies Administration Advertising Repairs and maintenance of equipment Utilities Depreciation Interest Profit before tax 15 000 5 000 3000 2500 1500 2500 1000 1000 31 500 $5500 442 The owner is currently preparing the budget for next year and is considering the following alternatives: 1. Reducing the cost of sales for food from 50 per cent to 45 per cent. This would be achieved by reducing portions and improved purchasing There would be no other changes 2. Cutting the food cost from 50 per cent to 45 per cent and spending an additional $1500 on advertising. The advertising should attract new customers and increase the volume of both food and beverage revenue by 20 per cent on present levels. The new customers would also cause monthly other operating expenses to increase as follows: Wages Supplies Administration Repairs Utilities $2000 400 200 150 400 Required Prepare a budgeted average monthly income statement for both alternatives. Advise the owner which alternative you consider best, with reasons