Acc561 Introduction to Management Accounting: 2-62 an income statement for La Brasserie

Acc561 Introduction to Management Accounting 2-62 Multiproduct Break-Even in a Restaurant Study Appendix 2A. An article in Washington Business included an income statement for La Brasserie, a French restaurant in Washington, D.C. A simplified version of the statement follows: Revenues 2,098,400 Cost of sales, all variable 1,246,500 Gross profit 851,900 Operating expenses Variable 222,380 Fixed 170,940 Administrative expenses, all fixed 451,500 Net income 7,080 The average dinner tab at La Brasserie is $40, and the average lunch tab is $20. Assume that the variable cost of preparing and serving dinner is also twice that of a lunch. The restaurant serves twice as many lunches as dinners. Assume that the restaurant is open 305 days a year. Average dinner revenue $40 Average lunch revenue $20 Variable cost of lunch X Variable cost of dinner 2X No. of lunches 2X No. of dinners X No. of days a year 305 1. Compute the daily break-even volume in lunches and dinners for La Brasserie. Compare this to the actual volume reflected in the income statement. 2. Suppose that an extra annual advertising expenditure of $15,000 would increase the average daily volume by three dinners and six lunches, and that there is plenty of capacity to accommodate the extra business. Prepare an analysis for the management of La Brasserie, explaining whether this would be desirable. 3. La Brasserie uses only premium food, and the cost of food makes up 25% of the restaurant's total variable costs. Use of average rather than premium ingredients could cut the food cost by 20%.Assume that La Brasserie uses average-quality ingredients and does not change its prices. How much of a drop-off in volume could it endure and still maintain the same net income? What factors in addition to revenue and costs would influence the decision about the quality of food to use?