| University | Singapore University of Social Science (SUSS) |
| Subject | MGT225: Managerial Accounting |
Five Sections of the Final Assignment:
1. Prepare and evaluate a Comparative Horizontal Income Statement and Balance Sheet and a Common Size Vertical Income Statement using current financials from an existing business.
2. Conduct a Ratio Analysis using financials from an existing business and analyze both the ratio and the trend.
3. Using the Bottoms Up Approach to Pricing, determine the minimum sales revenue needed for the first year the new business will be open.
4. Prepare an Annual Budgeted Income Statement in the USAR format for the first year of a new business.
5. Calculate and analyze Average Check Projections for both meal periods based on the prepared operating budget.
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Introduction
You decide to go into business with a former classmate that currently has a full-service restaurant and bar in the Hudson Valley. Your new partner says that the business has been successful for each of the two years that it has been open. Your former classmate would like to open a second location across the river, with you as an equal business partner. Based on the information that you have been provided below, prepare and discuss (where indicated) the following in preparation for this new business venture.
1. Using the 2018 and 2019 Income Statements, prepare both a Comparative Horizontal and Common Size Vertical Analysis. Using a subset of the 2018 and 2019 Balance Sheets, prepare a Comparative Horizontal Analysis. Write a brief essay describing your understanding of the current business using these statements. Comment on any significant variances. Additionally, explain what you believe to be the strengths and weaknesses of the business based on this information. Use the worksheets in the back of this packet to complete the analysis and the space provided for your essay.
| Income Statement for Existing Restaurant | YE 2018 | YE 2019 |
| Sales Revenue | ||
| Food Revenue | $995,000 | $1,115,000 |
| Beverage Revenue | $302,500 | $351,600 |
| Total Sales Revenue | $1,297,500 | $1,466,600 |
| Cost of Sales | ||
| Food COS | $352,500 | $345,200 |
| Beverage COS | $95,000 | $127,000 |
| Total Cost of Sales | $447,500 | $472,200 |
| Labor Expense | $382,560 | $564,310 |
| Prime Cost | $830,060 | $830,060 |
| Controllable Expenses | ||
| Operating Supplies Expense | $20,100 | $25,300 |
| Administrative and General Expense | $10,200 | $11,405 |
| Advertising and Promotion Expense | $4,200 | $4,600 |
| Repairs and Maintenance | $2,900 | $1,650 |
| Utilities | $14,100 | $12,545 |
| Total Controllable Expenses | $51,500 | $55,500 |
| Controllable Income | $415,940 | $374,590 |
| Non-Controllable Expenses | ||
| Depreciation | $10,000 | $10,000 |
| Occupancy Costs | $152,000 | $152,000 |
| Interest Expense | $5,800 | $5,200 |
| Total Non-Controllable Expenses | 168,800 | 167,200 |
| Operating Income | $248,140 | $207,390 |
| Subset of Balance Sheet | YE 2018 | YE 2019 |
| Current Assets | ||
| Cash | $48,200 | $31,600 |
| Credit Card Receivables | $2,740 | $3,100 |
| Accounts Receivable | $890 | $1,475 |
| Marketable Securities | $1,200 | $18,000 |
| Prepaid Expenses | $3,900 | $5,400 |
| Food Inventory | $6,900 | $4,700 |
| Beverage Inventory | $3,620 | $2,960 |
| Total Current Assets | $67,450 | $67,235 |
| Current Liabilities | ||
| Accounts Payable | $10,900 | $9,400 |
| Accrued Expenses Payable
|
$3,250 | $2,100 |
| Taxes Payable | $22,200 | $24,300 |
| Current Mortgage Payable | $13,200 | $11,600 |
| Total Current Liabilities | $49,550 | $47,400 |
2. Conduct a Ratio Analysis using the 2018 and 2019 financials from the existing business and comment on each. What is the trend from year 2018 to the year 2019? How do these ratios compare to Industry Data or Benchmarks (Reference Ratio Modules and Restaurant Benchmarks document)? What is your analysis? Any red flags or concerns?
- Working Capital
- Current Ratio
- Quick Ratio (Acid Test)
- Food Cost Percentage
- Beverage Cost Percentage
- Labor Cost Percentage
- Prime Cost Percentage
- Profit Margin Percentage
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3. Using the Bottoms up Approach to Pricing, determine the minimum sales revenue required for the first year the business will be open.
Estimates for Second Location
Desired Net Income for 1st Year from Second Location = $85,000
Income Tax Rate = 25%
Annual Rent (Occupancy Cost) = $60,000
Insurance and Licenses Expense= $6,000
Utilities Expense = $5,000
Repairs and Maintenance= $4,500
Administrative and General Expense = $13,500
Management Salaries = $150,000
Operating Supplies Expense = $20,000
Depreciation = $11,000
Advertising and Promotion Expense= $5,000
Interest Expense = $4,000
Variable Cost % Projections include: Food & Beverage COS at 33.5% and Labor at 32.5%. Include Other Variable Cost of 2.5%.
Seats = 100
Projected Business = 60% Dinner and 40% Lunch, Food Sales = 80% and Beverage Sales =20%
Projected Seat Turns = 1.6 for Dinner and 1.1 for Lunch
Open 6 days a Week. Closed 5 additional days per year
4. Prepare an Annual Budgeted Income Statement for the second location (using the information from question 3.) Use as much detail as possible and a format appropriate for Managerial Accounting (from Chapter
- Budgeting and Internal Controls packet ! USAR format with vertical analysis.) Please do not use a condensed format. Write a short paragraph highlighting your three main concerns regarding this budget.
5. Calculate minimum average check projections for both meal periods based on the budgeted income statement and other information given. What concerns do you have regarding these projections? Discuss two strategies to address these concerns. What additional information should you consider? What would you recommend average check goals to be? Why?
| YE 2018 | YE 2019 | $$ Change | % Change | |
| Sales Revenue | ||||
| Food Revenue | $995,000 | $1,115,000 | ||
| Beverage Revenue | $302,500 | $351,600 | ||
| Total Sales Revenue | $1,297,500 | $1,466,600 | ||
| Cost of Sales | ||||
| Food COS | $352,500 | $345,200 | ||
| Beverage COS | $95,000 | $127,00 | ||
| Total Cost of Sales | $447,500 | $472,200 | ||
| Labor Expense | $382,560 | $564,310 | ||
| Prime Cost | $830,060 | $1,036,510 | ||
| Controllable Expenses | ||||
| Operating Supplies Expense | $20,100 | $25,300 | ||
| Administrative and General Expense | $10,200 | $11,405 | ||
| Advertising and Promotion Expense | $4,200 | $4,600 | ||
| Repairs and Maintenance | $2,900 | $1,650 | ||
| Utilities | $14,100 | $12,545 | ||
| Total Controllable Expenses | ||||
| Controllable Income | $415,940 | $374,590 | ||
| Non-Controllable Expenses | ||||
| Depreciation | $10,000 | $10,000 | ||
| Occupancy Costs | $152,000 | $152,000 | ||
| Interest Expense | $5,800 | $5,200 | ||
| Total Non-Controllable Expenses | $167,800 | $167,200 | ||
| Operating Income | $248,140 | $207,390 |
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