I think this is the paper (though not finalized) for which I received the highest grade in the class. I was always proud of this accomplishment. There is another paper I have kept, but it was a group project and is nine pages long!
Accounting
6300
Dr. Pamela Jackson
November 8,
2011
Charley’s Family Steak House Parts A & B
1. Describe the business and organizational structure of Charley’s
Family Steak House. What are the current
concerns of the owner of Charley’s Family Steak House? How does he propose to remedy his concerns?
Charley’s Family
Steak house is comprised of four units that are owned solely by Charley Turner
through a private corporation. Each unit
has the menu posted on the wall and customers place their orders and pay for
their food, which is then brought to them by servers. Although each unit has
the same menu the prices are not fixed. The manager of each location is given
discretion to raise or lower certain prices by no more than 5%.
Mr. Turner and an
assistant purchase the food for each unit based on requests placed by the
managers of those units. Labor costs
vary at each unit depending on position. Cooks are paid $12 per hour with a $1
raise being considered by Alex, the General Manager of Unit 2, which tells us
that managers have some discretion in how much the cooks are paid. Servers are
paid a standard wage and tips are split among them. Each manager has a POS
system installed that allows them to view gross sales by menu item, how often
coupons are used, and by net sales.
Advertising is
handled almost exclusively by Mr. Turner. Once a month he places ads in local newspapers
that contain coupons that expire within two weeks. However, each manager is
given a small budget to with which to promote their individual unit. Overall,
Mr. Turner budgets 3.5% of gross sales for advertising.
Despite his
business model and organizational structure, Mr. Turner is not without
concerns. Fixed costs and how to cover them are on his mind as we are told that
he is considering test market serving breakfast at one of his stores to cover
them. Also this would help in more fully utilizing his facilities. Also, one of his managers had recently been
caught falsifying reports and this is making him wonder how to improve his
overall planning and control system.
Operating
expenses have also been a concern as he has had to convince Alex that these
expenses are basically fixed and vary with customer volume, but only above a
certain base amount. Mr. Turner and Alex agreed that identifying each cost
would be too time consuming and had compromised and left the budget the same
for the coming year as it had been for the year before.
Insurance, too,
is a concern. Premiums are expected to rise and this expense is allocated to
each unit based on square footage. In the coming year Mr. Turner is deciding
whether or not to add another restaurant and this will affect the allocation
amount to each unit. Other costs related to running the business such as
licenses and fees are paid by headquarters.
Finally, Mr.
Turner is considering creating a bonus package for his store managers. This
package would be based on how well the unit performed as measured against
predetermined sales and profit goals. Mr. Turner thinks that this will give
each manager greater incentive to careful review their annual forecasts and to
meet target goals.
2. Given the information provided in the case and the
parenthetical calculations provided below by your accountant, explain the
factors that are used to arrive at the forecast of Gross Sales and Net Sales in
the company’s 2008 Operating Plan in Exhibit 2 on page 118.
a. Gross Sales (3850 x 40% x $7.50) +
(3850 x 60% x $10.50)
b. Net Sales (3850 x 40% x $7.00) +
(3850 x 60% x $10.00)
(Explain
the source of each number in the parenthetical calculations)
A.
Gross sales are determined by taking the average
weekly customer count of 3,850 (multiplied by 52) and multiplying it by the
percentage of those customers who eat at lunchtime, which we are told amounts
to 40% and multiplying that by the average amount of the diners check, which we
are told is $7.50.The same is done for dinner customers using 60% and $10.50
for the check amount. Alternately, we are told in the case that the unit
expected to sell 182,000 meals over the whole year with a 10% increase being
calculated which would be added to 1, thus making it 1.1. This in turn would be
multiplied by 40% and the average meal cost and the same would be done for
dinner, but 60% and $7.50 would be multiplied by 182,000 and 1.1. These
percentages are targets set by Mr. Turner and Alex.
B.
Net sales are determined by multiplying 182,000
by 1.1 (last year plus the projected increase) by .50 (the average of 40% and
60%). This comes to 100,100 which is subtracted from the gross and this leaves
us $1,761,760
3. Given the information provided in
the case and the parenthetical calculations provided below by your accountant,
explain the factors that are used to arrive at the forecast of for each of the
following expenses from Exhibit 2 on page 118. (Note: Miscellaneous, Insurance, and Management
expenses are all given in the case and require no calculation, and, therefore,
no explanation.)
a. Food ($1,861,860 x 55%) = 1,024,023.
Food sales are 55% of gross sales.
b. Labor [(2000 x 4) x
$13] + [(.16 x 3850 x 52) x $3] = The budgeted labor hours per year for 4
full-time cooks (2000x4) for 182,000 customers. They are paid $13 per hour and
this is added to budgeted labor hours for servers. The budget labor hours for
2007 was 28,800 (1800 x 16) for 182,000 customers. This calculates into .16 hours per customer
(28,800 total hours/182,000). In 2008, they expect 3850 customers a week (.10
increase in customers). 3850 x 52 = 200200 customers.
Thus, 200,200 customers requiring .16 hrs. each for cashier and server
services x$3 per hour = $96,096.
Cooks = $104,000 (as you calculated) Cashiers/Servers = $96,096 (per
explanation above)
TOTAL = $200,096
c. Other Operating Expenses
($1,861,860 x 8%) is gross sales x’s actual gross sales from 2007 (they agreed
to keep the percentage the same) = 149,949.
d. Advertising ($1,861,860 x 3.5%) =
$65,165. We are told that Mr. Turner plans to incur advertising expenses of
3.5% of gross sales.
e. Depreciation ($2,000 x 12) =
$24,000. This is the monthly amount by the number of months in the year and is
a fixed cost.
f. Licenses and Fees ($11,250 x 1.04)
= $11,700. The cost is increasing by 4%, so it is 1.00 + .04.
g. Rent ($6,000 x 12) = $72,000. We are
told rent is fixed for 10 years.
h. Rent Overage ($61,860 x 5%)
=$95,000. We are told that each year payments equal to 5% must be made on gross
sales above $1,800,000.
4. Assume
the forecasted sales volume for Unit No. 2 in 2008 is reduced to 3,700 meals
per week from 3,850 meals per week.
Prepare a revised 2008 Operating Plan for similar to Exhibit 2 for this
reduced forecasted volume.
Revised
budget
Gross Sales $1,789,320
$96,200
Net Sales $1,693,120
Food $984,126
Labor: $196,352 (cooks -
$104,000/Servers - $92,352)
Other
Operating Expenses $143,146
Contribution $369,496
Operating
Expenses:
Advertising $62,626
Miscellaneous $3,000
Depreciation $24,000
Insurance $9,400
Licenses and
Fees $ 11,700
Rent (Base) $ 72,000
Rent (Overage) 0 -Under
$1,800,000
Management $95,000
Total
Operating Expenses $277,726
Profit $91,770
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