Reference no: EM132524268

Controllable Costs

• Cindy's BBQ is a restaurant in Thunder Bay. Cindy expanded to a second location in Sudbury three years ago. Recently, Cindy 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 2019, the Thunder Bay restaurant had sales of $850,000 and the Sudbury restaurant also had sales of $850,000. Variable expenses run 60% of sales for the Thunder Bay restaurant and 70% of sales for the Sudbury restaurant. Note: The Sudbury restaurant is still pricing lower than the Thunder Bay restaurant in order to establish a customer base.

• Each restaurant manager is responsible for the rent and some other fixed costs for his or her restaurant. These costs amount to $125,000 for the Thunder Bay restaurant and $50,000 for the Sudbury restaurant. The difference is primarily due to the lower rent in Sudbury. In addition, several costs, 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 $360,000 cost in this category, $110,000 related to the Thunder Bay Restaurant and $180,000 to the Sudbury restaurant, where most of the additional cost in Sudbury is due to the cost of extra advertising to build up its customer base. The remaining $70,000 was general corporate overhead.

Required:

Question 1: Prepare income statements for 2019 for each restaurant and for the company as a whole. Use a format that allows easy assessment of each manager's performance and each restaurant's economic performance.

Question 2: Using only the information provided:

a. Evaluate each restaurant as an economic investment.

b. Evaluate each manager.