Solution-Prepare the alternative projections

Prepare the alternative projections

Reference no: EM13831624

Problem:

The owner of a restaurant is considering two alternatives to improve operating results. The first alternative reduces food costs from 42% to 37% by improved purchasing and reduced portions. No other changes. The second alternative also cuts food costs to 37% but also spends $2,000 on advertising to increase food and beverage sales by 20%. Extra customers will cause costs to increase in these categories: $2,000 in wages, $800 in supplies, $200 in administrative, $300 in repairs and $100 in utilities. Prepare the alternative projections.


	Current	Alternative I	Alternative II
Sales - Food	$40,000	$40,000
Sales - Beverage	10,000	10,000
Total Sales	$50,000

Cost of Sales - Food	16,800
Cost of Sales - Beverage	3,000
Total Cost of Sales	$19,800

Gross Margin	$30,200

Operating Expenses
Wages	13,600	13,600
Supplies	4,000	4,000
Administrative & General	2,600	2,600
Advertising & Promo	1,800	1,800
Repair	900	900
Utilities	1,300	1,300
Depreciation	700	700	700
Interest	600	600	600
Total Expenses	$25,500	$25,500

Operating Income	$4,700


Alternative I	Alternative II
	20%	Added sales
	20%	Added sales


37%	37%	Cost %
30%	30%	Cost %





	$2,000	Added expense
	$800	Added expense
	$200	Added expense
	$2,000	Added expense
	$300	Added expense
	$100	Added expense

Advise the owner on which alternative to select and why.

Reference no: EM13831624

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Prepare the alternative projections

Reference no: EM13831624

Reference no: EM13831624

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