QUESTION ONE

A local restaurant has been examining the profitability of its set menu. At the beginning of the year the selling price was based on the following standard predicted costs:

Starter: Soup of the day
150g of mushrooms @ 3.00 per kg					0.45
Cream and other ingredients					0.30
Main course: Roast beef
Beef	0.15	kg @	18.00	per kg	2.70
Potatoes	0.20	kg @	0.25	per kg	0.05
Vegetables	0.30	kg @	0.90	per kg	0.27
Other ingredients and accompaniment					0.53
Dessert: Fresh tropical fruit salad
Fresh fruit	0.20	kg @	3.50	per kg	0.70

The selling price was set at 8.50. During October 2019 the number of set menus sold was 860 instead of the 750 budgeted: this increase was achieved by reducing the selling price to 8.00.

During the same period an analysis of the direct costs incurred showed:

120	kg of mushrooms		420
Cream and other ingredients			240
120	kg of beef		2400
190	kg of potatoes		38
275	kg of vegetables		330
Other ingredients and accompaniments			300
165	kg of fresh fruit		495

There was no stock of ingredients at the beginning or end of the month.

Required:

1. Calculate the budgeted profit for the month of October 2019.

(2 marks)

2. Calculate the actual profit for the month of October 2019.

(2 marks)

3. Prepare an operating statement that reconciles your answers to (a) and (b) above and calculate the price, usage and volume variances. Please note, for cream and other ingredients and other ingredients and accompaniments, calculation of expenditure variance is sufficient.

(16 marks)

4. Identify and discuss the two most significant variances.

(Maximum word count: 100 words)

(5 marks)

[TOTAL 25 MARKS]