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1. Interview the manager of a restaurant. Does the restaurant make or buy soups and deserts? Based on your interview, write a short report that explains why the restaurant makes or buys each of these items.

2. What advantages do audits provide?

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Jean Keeling
Jean KeelingLv2
28 Sep 2019

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Post-Audit and Reevaluation of Investment Proposal: IRR

Throughout his four years in college, Ronald King worked at the local Beef Burger Restaurant in

College City. Although the working conditions were good and the pay was not bad, Ron believed he

could do a much better job of managing the restaurant than the current owner-manager. In particular,

Ron believed that the proper use of marketing campaigns and sales incentives, such as selling a second

burger for a 25 percent discount, could increase annual sales by 40 percent.

Just before graduation in 2016, Ron inherited $500,000 from his great uncle. He seriously con-

sidered buying the restaurant. It seemed like a good idea because he liked the town and its college

atmosphere, knew the business, and always wanted to work for himself. He also knew that the cur-

rent owner wanted to sell the restaurant and retire to Florida. As part of a small business management

course, Ron developed the following income statement for the restaurant’s 2015 operations:

BEEF BURGER RESTAURANT: COLLEGE CITY

Income Statement

For Year Ended December 31, 2015

Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $450,000

Expenses

Cost of food . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $150,000

Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000

Employee expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140,000

Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,000

Property taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000

Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000

Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000

Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000

436,000

Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,000

Ron believed that the cost of food and supplies were all variable, the employee expenses and utilities

were one-half variable and one-half fixed in 2015, and all other expenses were fixed. If Ron purchased

the restaurant and followed through on his plans, he believed there would be a 40 percent increase

in unit sales volume and all variable costs. Of the fixed costs, only advertising would increase by

$12,000. The use of discounts and special promotions would, however, limit the increase in sales

revenue to only 30 percent even though sales volume increased 40 percent.

Required

a. Determine

1. The current annual net cash inflow.

2. The predicted annual net cash inflow if Ron executes his plans and his assumptions are correct.

b. Ron believes his plan would produce equal net cash inflows during each of the next 15 years, the

period remaining on a long-term lease for the land on which the restaurant is built. At the end of

that time, the restaurant would have to be demolished at a predicted net cost of $80,000. Assum-

ing Ron would otherwise invest the money in stock expected to yield 12 percent, determine the

maximum amount he should pay for the restaurant.

c. Assume that Ron accepts an offer from the current owner to buy the restaurant for $350,000.

Unfortunately, although the expected increase in sales volume does occur, customers make much

more extensive use of the promotions than Ron had anticipated. As a result, total sales revenues are

8 percent below projections. Furthermore, to improve employee attitudes, Ron gave a 10 percent

raise immediately after purchasing the restaurant. Reevaluate the initial decision using the actual

sales revenue and the increase in labor costs, assuming conditions will remain unchanged over the

remaining life of the project. Was the investment decision a wise one? (Round calculations to the

nearest dollar.)

d. Ron can sell the restaurant to a large franchise operator for $250,000. Alternatively, he believes

that additional annual marketing expenditures and changes in promotions costing $20,000 per

year could bring the sales revenues up to their original projections, with no other changes in costs.

Should Ron sell the restaurant or keep it and make the additional expenditures? (Round calcula-

tions to the nearest dollar.) (Hint: Ron has just bought the restaurant.)

Raphael Hotel​ & Casino is situated on beautiful Lake Tahoe in Nevada. The complex includes a​ 300-room hotel, a​ casino, and a restaurant. As Raphael's new​ controller, your manager asks you to recommend the basis the hotel should use for allocating fixed overhead costs to the three divisions in 2017. You are presented with the following income statement information for 2016:

Hotel

Restaurant

Casino

Revenues

$16,850,000

$7,150,000

$12,430,000

Direct Costs

$9,675,000

$4,392,000

$4,624,900

Segment Margin

$7,175,000

$2,757,900

$7,805,100

You are given the following data on the three divisions.

Hotel

Restaurant

Casino

Floor Space (Square Feet)

75,000

15,000

60,000

Number of Employees

360

90

450

Requirement 1. Calculate division margins in percentage terms prior to allocating fixed overhead costs. ​ (Round your answers to two decimal​ places, X.XX.)

Hotel

Restaurant

Casino

Division margin

%

%

%

Requirement 2.

Allocate indirect costs to the three divisions using each of the three allocation bases suggested. For each allocation base, calculate division operating margins after allocations in dollars and as a percentage of revenues.

Allocate the indirect costs, then calculate the division operating margin in dollars and as a percentage of revenue for each segment.

Begin with cost allocation based on direct costs

Hotel

Restaurant

Casino

Raphael (Total)

Allocated Fixed Overhead Costs

?

?

?

?

Operating Margin

?

?

?

?

Operating Margin %

?%

?%

?%

Next, allocate costs based on floor space

And finally costs based on number of employers based on the Table above

Hotel

Restaurant

Casino

Raphael (Total)

Allocated Fixed Overhead Costs

?

?

?

?

Operating Margin

?

?

?

?

Operating Margin %

?%

?%

?%

Now allocate costs based on number of employees

Hotel

Restaurant

Casino

Raphael (Total)

Allocated Fixed Overhead Costs

?

?

?

?

Operating Margin

?

?

?

?

Operating Margin %

?%

?%

?%

There is (a dramatic difference/no difference) in the operating margin percentages depending upon which allocation base is chosen. Where cost allocation is required, the (cause-and-effect/direct cost/non-financial) and (benefits received/division-costs/floor-space) criteria are recommended. The $14,600,000 is (fixed/variable) overhead cost. This means that on a short-run basis the (cause-and-effect/direct cost/non-financial) criterion is not appropriate but Smith could attempt to identify the cost drivers for these costs in the long run. Smith should look at how the $14,610,000 cost (benefits/is a detriment to) the three divisions.

Your Restaurant Business Discussion

Part 1: Opening Your Own Business

You are considering starting your own restaurant. What are thetypes of business organizations can you choose from? Which onewould you choose, and what benefits and disadvantages would thatform offer you?

Part 2: Accounting for Your Own Business

Throughout the course, you will be working on your ownfictitious business—a new restaurant! In Part 1 of this discussion,you chose how you would like to structure your business: a soleproprietorship, a partnership, or a corporation. Now, let’s assumeyou have been in business for a short time. Your staff is busycooking, waiting tables, and making your customers happy. You’llneed to record all of the transactions in order to keep an accuraterecord of how well your restaurant is performing. This importanttask can certainly be done by hand, but there are also a lot ofgreat software programs that can help make the task easier. Evensmall businesses can benefit from accounting/financial software.Research the business software QuickBooks. In your initial post,explain what QuickBooks is and how you feel it could help improveyour ability to track and record transactions in your newrestaurant.

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