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Gilman's Café is a popular restaurant in a local tourist town. Sarah Gilman, who opened the restaurant five years ago, has seen it grow steadily. Currently, Gilman's is only open for dinner, but many of her regular customers have been asking Sarah to consider opening for lunch as well. Sarah has been talking to her accountant about the financial impact of the expanded services on the overall business. She knew that the café did not make much money and she was concerned that the new business might be too risky. The accountant asked her for her best estimates on the impact of the new business on revenues and costs. She had been thinking about this for some time and estimates that revenues would grow by about 25 percent. Food costs would increase by about 40 percent and labor costs by about 20 percent. Her rent would not change, but utilities would increase by about 25 percent. Other costs would increase by 15 percent. The salary she pays herself as manager of the café would not change. A few days later, her accountant stops by with the following estimated income statement assuming she adds the lunch business. Required : a-1. Prepare an income statement. a-2. Based on the financial impact, should Sarah open the café for lunch? b. Are there other factors she should consider? Complete this question by entering your answers in the tabs below. Req A1 Req A2 Req B Prepare an income statement. Gilman's Cafe Annual Income Statement Lunch and Dinner Service Dinner Service Only Sales revenue $ 711,000 Costs Food costs 231,000 Labor 237,000 Rent 56,000 Utilities 55,000 Other costs 40,250 Manager's Salary 70,000 Total costs $ 689,250 $ Operating profit (loss) $ 21,750

Gilman's Café is a popular restaurant in a local tourist town. Sarah Gilman, who opened the restaurant five years ago, has seen it grow steadily. Currently, Gilman's is only open for dinner, but many of her regular customers have been asking Sarah to consider opening for lunch as well. Sarah has been talking to her accountant about the financial impact of the expanded services on the overall business. She knew that the café did not make much money and she was concerned that the new business might be too risky. The accountant asked her for her best estimates on the impact of the new business on revenues and costs. She had been thinking about this for some time and estimates that revenues would grow by about 25 percent. Food costs would increase by about 40 percent and labor costs by about 20 percent. Her rent would not change, but utilities would increase by about 25 percent. Other costs would increase by 15 percent. The salary she pays herself as manager of the café would not change. A few days later, her accountant stops by with the following estimated income statement assuming she adds the lunch business. Required : a-1. Prepare an income statement. a-2. Based on the financial impact, should Sarah open the café for lunch? b. Are there other factors she should consider? Complete this question by entering your answers in the tabs below. Req A1 Req A2 Req B Prepare an income statement. Gilman's Cafe Annual Income Statement Lunch and Dinner Service Dinner Service Only Sales revenue $ 711,000 Costs Food costs 231,000 Labor 237,000 Rent 56,000 Utilities 55,000 Other costs 40,250 Manager's Salary 70,000 Total costs $ 689,250 $ Operating profit (loss) $ 21,750

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter7: Allocating Costs Of Support Departments And Joint Products
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Gilman's Café is a popular restaurant in a local tourist town. Sarah Gilman, who opened the restaurant five years ago, has seen it grow steadily. Currently, Gilman's is only open for dinner, but many of her regular customers have been asking Sarah to consider opening for lunch as well. Sarah has been talking to her accountant about the financial impact of the expanded services on the overall business. She knew that the café did not make much money and she was concerned that the new business might be too risky. The accountant asked her for her best estimates on the impact of the new business on revenues and costs. She had been thinking about this for some time and estimates that revenues would grow by about 25 percent. Food costs would increase by about 40 percent and labor costs by about 20 percent. Her rent would not change, but utilities would increase by about 25 percent. Other costs would increase by 15 percent. The salary she pays herself as manager of the café would not change. A few days later, her accountant stops by with the following estimated income statement assuming she adds the lunch business. Required : a-1. Prepare an income statement. a-2. Based on the financial impact, should Sarah open the café for lunch? b. Are there other factors she should consider? Complete this question by entering your answers in the tabs below. Req A1 Req A2 Req B Prepare an income statement. Gilman's Cafe Annual Income Statement Lunch and Dinner Service Dinner Service Only Sales revenue $ 711,000 Costs Food costs 231,000 Labor 237,000 Rent 56,000 Utilities 55,000 Other costs 40,250 Manager's Salary 70,000 Total costs 2$ 689,250 $ Operating profit (loss) $ 21,750
Transcribed Image Text:Gilman's Café is a popular restaurant in a local tourist town. Sarah Gilman, who opened the restaurant five years ago, has seen it grow steadily. Currently, Gilman's is only open for dinner, but many of her regular customers have been asking Sarah to consider opening for lunch as well. Sarah has been talking to her accountant about the financial impact of the expanded services on the overall business. She knew that the café did not make much money and she was concerned that the new business might be too risky. The accountant asked her for her best estimates on the impact of the new business on revenues and costs. She had been thinking about this for some time and estimates that revenues would grow by about 25 percent. Food costs would increase by about 40 percent and labor costs by about 20 percent. Her rent would not change, but utilities would increase by about 25 percent. Other costs would increase by 15 percent. The salary she pays herself as manager of the café would not change. A few days later, her accountant stops by with the following estimated income statement assuming she adds the lunch business. Required : a-1. Prepare an income statement. a-2. Based on the financial impact, should Sarah open the café for lunch? b. Are there other factors she should consider? Complete this question by entering your answers in the tabs below. Req A1 Req A2 Req B Prepare an income statement. Gilman's Cafe Annual Income Statement Lunch and Dinner Service Dinner Service Only Sales revenue $ 711,000 Costs Food costs 231,000 Labor 237,000 Rent 56,000 Utilities 55,000 Other costs 40,250 Manager's Salary 70,000 Total costs 2$ 689,250 $ Operating profit (loss) $ 21,750
Gilman's Café is a popular restaurant in a local tourist town. Sarah Gilman, who opened the restaurant five years ago, has seen it steadily. Currently, Gilman's is only open for dinner, but many of her regular customers have been asking Sarah to consider opening for lunch as well. Sarah has been talking to her accountant about the financial impact of the expanded services on the overall business. She knew that the café did not make much money and she was concerned that the new business might be too risky. The accountant asked her for her best estimates on the impact of the new business on revenues and costs. She had been thinking about this for some time and estimates that revenues would grow by about 25 percent. Food costs would increase by about 40 percent and labor costs by about 20 percent. Her rent would not change, but utilities would increase by about 25 percent. Other costs would increase by 15 percent. The salary she pays herself as manager of the café would not change. A few days later, her accountant stops by with the following estimated income statement assuming she adds the lunch business. grow Required : a-1. Prepare an income statement. a-2. Based on the financial impact, should Sarah open the café for lunch? b. Are there other factors she should consider? Complete this question by entering your answers in the tabs below. Req A1 Req A2 Reg B Are there other factors she should consider? (Select all that apply.) Whether this will lead to customers switching from dinner to lunch. What other restaurants might do. Whether the longer opening hours might cause the restaurant to lose some of its appeal. Whether this will lead to enhancement of storage facilities. Whether the longer opening hours might cause the restaurant to recruit additional staff.
Transcribed Image Text:Gilman's Café is a popular restaurant in a local tourist town. Sarah Gilman, who opened the restaurant five years ago, has seen it steadily. Currently, Gilman's is only open for dinner, but many of her regular customers have been asking Sarah to consider opening for lunch as well. Sarah has been talking to her accountant about the financial impact of the expanded services on the overall business. She knew that the café did not make much money and she was concerned that the new business might be too risky. The accountant asked her for her best estimates on the impact of the new business on revenues and costs. She had been thinking about this for some time and estimates that revenues would grow by about 25 percent. Food costs would increase by about 40 percent and labor costs by about 20 percent. Her rent would not change, but utilities would increase by about 25 percent. Other costs would increase by 15 percent. The salary she pays herself as manager of the café would not change. A few days later, her accountant stops by with the following estimated income statement assuming she adds the lunch business. grow Required : a-1. Prepare an income statement. a-2. Based on the financial impact, should Sarah open the café for lunch? b. Are there other factors she should consider? Complete this question by entering your answers in the tabs below. Req A1 Req A2 Reg B Are there other factors she should consider? (Select all that apply.) Whether this will lead to customers switching from dinner to lunch. What other restaurants might do. Whether the longer opening hours might cause the restaurant to lose some of its appeal. Whether this will lead to enhancement of storage facilities. Whether the longer opening hours might cause the restaurant to recruit additional staff.
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