Problem 17-38 Analyze Performance for a Restaurant (LO 17-5) Doug’s Diner is planning to expand operations...

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Accounting

Problem 17-38 Analyze Performance for a Restaurant (LO 17-5)
Doug’s Diner is planning to expand operations and is concernedthat its reporting system might need improvement. The master budgetincome statement for the Downtown Doug’s, which contains adelicatessen and restaurant operation, follows (in thousands):
Delicatessen Restaurant Total
Sales revenue $ 600 $ 2,000 $ 2,600
Costs
Purchases 360 1,100 1,460
Hourly wages 30 438 468
Franchise fee 18 39 57
Advertising 50 100 150
Utilities 42 63 105
Depreciation 25 38 63
Lease cost 15 25 40
Salaries 15 25 40
Total costs $ 555 $ 1,828 $ 2,383
Operating profit $ 45 $ 172 $ 217
The company uses the following performance report for managementevaluation:

DOWNTOWN DOUG’S
NetIncome for the Year
($000)
Actual Results
Actual Results Delicatessen Restaurant Total Budget Over-or
(Under-) Budget^a
Sales revenue $ 700 $ 1,000 $ 1,700 $ 2,600 $ (900 )
Costs
Purchases^b 450 400 850 1,460 $ (610 )
Hourly wages^b 35 350 385 468 (83 )
Franchise fee^b 21 30 51 57 (6 )
Advertising 50 100 150 150
Utilities^b 45 50 95 105 (10 )
Depreciation 25 38 63 63
Lease cost 15 25 40 40
Salaries 15 25 40 40
Total costs $ 656 $ 1,018 $ 1,674 $ 2,383 $ (709 )
Operating profit $ 44 $ (18 ) $ 26 $ 217 $ (191 )
^a There is no sales price variance.
^b Variable costs; all other costs are fixed.
Required:
Actual Purchases Variances Marketing & Administrative Variances Flexible Budget Activity Variance Master Budget
Sales revenue $700 $600
Variable costs:
Purchases 450 360
Hourly wages 35 30
Franchise fee 21 18
Utilities 45 42
Total variable costs $551 $450
Contribution margin $149 $150
Fixed costs:
Advertising 50 50
Depreciation 25 25
Lease 15 15
Salaries 15 15
Total fixed costs $105 $105
Operating profit $44 $45

Answer & Explanation Solved by verified expert

3.9 Ratings (359 Votes)

Flexible Budget A flexible budget also called a variable budget is financial plan of estimated revenues and expenses based on the current actual amount of output In the question it is said that the sales price variance is Nil Means sales revenue in flexible budget is same as sales revenue actual results Actual A Purchases Variances A B Marketing Administrative Variances A B Please refer Note2 below Flexible Budget B Please See Answer

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Problem 17-38 Analyze Performance for a Restaurant (LO 17-5)Doug’s Diner is planning to expand operations and is concernedthat its reporting system might need improvement. The master budgetincome statement for the Downtown Doug’s, which contains adelicatessen and restaurant operation, follows (in thousands):DelicatessenRestaurantTotalSales revenue$600$2,000$2,600CostsPurchases3601,1001,460Hourly wages30438468Franchise fee183957Advertising50100150Utilities4263105Depreciation253863Lease cost152540Salaries152540Total costs$555$1,828$2,383Operating profit$45$172$217The company uses the following performance report for managementevaluation: DOWNTOWN DOUG’SNetIncome for the Year($000)Actual ResultsActual ResultsDelicatessenRestaurantTotalBudgetOver-or(Under-) BudgetaSales revenue$700$1,000$1,700$2,600$(900)CostsPurchasesb4504008501,460$(610)Hourly wagesb35350385468(83)Franchise feeb21305157(6)Advertising50100150150Utilitiesb455095105(10)Depreciation25386363Lease cost15254040Salaries15254040Total costs$656$1,018$1,674$2,383$(709)Operating profit$44$(18)$26$217$(191)a There is no sales price variance.b Variable costs; all other costs are fixed.Required:ActualPurchases VariancesMarketing & Administrative VariancesFlexible BudgetActivity VarianceMaster BudgetSales revenue$700$600Variable costs:Purchases450360Hourly wages3530Franchise fee2118Utilities4542Total variable costs$551$450Contribution margin$149$150Fixed costs:Advertising5050Depreciation2525Lease1515Salaries1515Total fixed costs$105$105Operating profit$44$45

	Delicatessen			Restaurant			Total
Sales revenue		$	600		$	2,000	$	2,600
Costs
Purchases			360			1,100		1,460
Hourly wages			30			438		468
Franchise fee			18			39		57
Advertising			50			100		150
Utilities			42			63		105
Depreciation			25			38		63
Lease cost			15			25		40
Salaries			15			25		40
Total costs		$	555		$	1,828	$	2,383
Operating profit		$	45		$	172	$	217

	DOWNTOWN DOUG’S
	NetIncome for the Year
	($000)
	Actual Results
Actual Results	Delicatessen			Restaurant			Total		Budget		Over-or (Under-) Budget^a
Sales revenue		$	700	$	1,000		$	1,700	$	2,600		$	(900	)
Costs
Purchases^b			450		400			850		1,460		$	(610	)
Hourly wages^b			35		350			385		468			(83	)
Franchise fee^b			21		30			51		57			(6	)
Advertising			50		100			150		150
Utilities^b			45		50			95		105			(10	)
Depreciation			25		38			63		63
Lease cost			15		25			40		40
Salaries			15		25			40		40
Total costs		$	656	$	1,018		$	1,674	$	2,383		$	(709	)
Operating profit		$	44	$	(18	)	$	26	$	217		$	(191	)