Question
Sam's BQ is a restaurant in New Market expanded to a second location in Barrie 3 years ago. Recently, Sam decided to retire from active
Sam's BQ is a restaurant in New Market expanded to a second location in Barrie 3 years ago. Recently, Sam decided to retire from active management of the individual restaurants but continued to oversee the entire company. She hired a manager for each restaurant.
In 2012, the New Market restaurant had sales of $1,050,000 and the Barrie restaurant also had sales of $1,050,000. Variable expenses run 70% of sales for the New Market restaurant and 75% of sales for the Barrie restaurant. (The Barrie restaurant is still pricing lower than the New Market restaurant to establish a customer base.) Each manager is responsible for the rent and some other fixed costs for his or her restaurant. These costs amounted to $100,000 for the New Market restaurant and $65,000 for the one in Barrie. The difference is primarily due to lower rent in Barrie. In addition, severalcosts, such as advertising, legal services, accounting, and personnel services, were centralized. The managers had no control of these expenses, but some of them directly benefited the individual restaurants. Of the $340,000 cost in this category, $90,000 related to the New Market restaurant and $190,000 to the Barrie restaurant, where most of the additional cost in Barrie is due to the cost of extra advertising to build up its customer base. The remaining $ 60 000 was general corporate overhead.
Requirement 1. Prepare income statements for each restaurant and for the company as a whole. Use a format that allows easy assessment of eachmanager's performance and each restaurant's economic performance.
Begin by preparing the income statement for the company as a whole, then prepared the income statements for each restaurant.
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Revenues | |
Variable costs | |
Contribution margin | |
Less: Fixed costs controllable | |
by restaurant managers | |
Contribution controllable | |
by restaurant managers | |
Less: fixed cost controllable | |
by others | |
Contribution by restaurants | |
Less: Unallocated costs | |
Operating income |
Company |
as a whole |
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Requirement 2a. Using only the information given in this exercise, evaluate each restaurant as an economic investment.
The new restaurant in Barrie IS PROFITABLE / IS NOT YET AS PROFITABLE as the New York restaurant.
The advertising campaign to build up the customer base / legal and accounting fees in Barrie weighs heavily on the profits of the Barrie restaurant. However, both restaurants have a negative / positive contribution after subtracting all costs that the company can specifically identify with individual restaurants.
Requirement 2b. Using only the information given in this exercise, evaluate each manager.The two managers don't have the same levels / have almost equal levels
of performance, with the New Market manager having $_____ more controllable contribution. The lower contribution by restaurant / contribution controllable by restaurant managers
/ contribution margin in Barrie is offset by its lower rent and other fixed costs that the manager controls. Although the two managers reach their level of profitability by different means (that is, by a different mix of costs), the manager in New Market seems to be performing better / the manager in Barrie seems to be performing better / they seem to both be performing well.
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