Chapter 10, Question 1. a.

Boniso operates Boniso’s Mexican Restaurant in an urban city in the South. He has worked hard at
setting up cost control systems, and he is generally happy with his overall results. However, he is
not sure if all of his menu items are providing profitability for his restaurant. He decides to use food
cost matrix and contribution margin matrix analyses to study each of his menu items.
a. Complete his menu analysis worksheet.

Menu Analysis Worksheet

Number Selling
Menu Item Sold Price Total Sales Item Cost Total Cost
Fajita Plate 147 $12.95 $1,903.65 $4.92 $723.24
Enchilada Dinner 200 $9.95 $1,990.00 $3.48 $696.00
Menudo 82 $6.95 $569.90 $1.74 $142.68
Mexican Salad 117 $7.95 $930.15 $2.39 $279.63
Chalupa Dinner 125 $8.95 $1,118.75 $2.51 $313.75
Burrito Dinner 168 $9.95 $1,671.60 $3.25 $546.00
Taco Dinner 225 $5.95 $1,338.75 $1.55 $348.75
Total 1,064 $9,522.80 $3,050.05

Weighted Average 152 $8.95 $1,360.40 $2.87 $435.72

Chapter 10
Q 1.a.
Item Total
Contribution Contribution Food
Margin Margin Cost %
$8.03 $1,180.41 38%
$6.47 $1,294.00 35%
$5.21 $427.22 25%
$5.56 $650.52 30%
$6.44 $805.00 28%
$6.70 $1,125.60 33%
$4.40 $990.00 26%
$6,472.75

$6.08 $924.68 32%

Chapter 10
Q 1.a.
Chapter 10, Question 1. b.

Using the results of Boniso’s menu analysis worksheet (in part a), fill in
the appropriate average food cost, popularity, and contribution margin in
the blanks below. Then, place the menu items in the appropriate squares
in the matrices.

Food Cost Matrix

High Food Cost % Enchilada Dinner,

(Above 32 %) Fajita Plate Burrito Dinner
Menudo,
Low Food Cost % (Below Mexican Salad,
32 %) Chalupa Dinner Taco Dinner
Low Popularity High Popularity
(Below 152 (Above 152
Sales) Sales)

Contribution Margin Matrix

High Contribution Margin Fajita Plate， Enchilada Dinner,

(Above $ 6.08 ) Chalupa Dinner Burrito Dinner,

Low Contribution Margin Mexican Salad,

(Below $ 6.08 ) Menudo, Taco Dinner
Low Popularity High Popularity
(Below 152 (Above 152
Sales) Sales)

Chapter 10
Q 1.b.
Chapter 10, Question 2

Garikai is a manager at Boniso’s Mexican Restaurant (from the previous question), and he believes that
goal value analysis, rather than Boniso’s matrix analysis, is a better way to study the profitability of his
menu items.

a. Using the following goal value analysis data, help Garikai analyze the restaurant’s menu items.

2.a.
After computing the following goal values, sort (in descending rank order) by goal value. Be sure to include the overall
menu in the appropriate rank order. Spreadsheet hint: Calculate the goal values by placing the ENTIRE Goal Value
formula for each item in the Goal Value column as follows: (1 − Food Cost %) × Item Popularity × Selling Price × (1 −
(Variable Cost % + Food Cost %)). The table will not sort correctly if partial calculations for Goal Value exist in columns A,
B, C, or D. For example, DO NOT calculate (1 − Food Cost %) in the A column or (1 − (Variable Cost % + Food Cost %))
in the D column.

Goal Value Analysis Results

Food Cost % Number Selling Variable Cost %
Item (in decimal form) Sold Price (in decimal form)
Fajita Plate 0.38 147 $12.95 0.28
Enchilada Dinner 0.35 200 $9.95 0.28
Menudo 0.25 82 $6.95 0.28
Mexican Salad 0.30 117 $7.95 0.28
Chalupa Dinner 0.28 125 $8.95 0.28
Burrito Dinner 0.33 168 $9.95 0.28
Taco Dinner 0.26 225 $5.95 0.28
Overall Menu (Goal
Value) 0.32 152 $8.95 0.28

2.b.
b. After analyzing his menu items, Garikai believes he can improve the chalupa dinner by lowering the
selling price to $8.55. He believes that this lower price will increase number of chalupa dinners sold to
150. However, the change in price will increase both his food cost percentage and variable cost
percentage to 29 percent for the chalupa dinner.

Results of Changes Made to Chalupa Dinner

"A" "B" "C" "D"
Food Cost % Number Selling Variable Cost %
Item (in decimal form) Sold Price (in decimal form)

Chalupa Dinner 0.29 150 8.55 0.29

If he makes these changes, will the chalupa dinner meet or exceed the overall menu goal value?
Should Garikai make these changes?
Chapter
Answer: 10
382.4>370. It exceed the overall menu goal value so he should make these changes.
Q2
 If he makes these changes, will the chalupa dinner meet or exceed the overall menu goal value?
Should Garikai make these changes?

Answer: 382.4>370. It exceed the overall menu goal value so he should make these changes.

Chapter 10
Q2
 sure to include the overall
he ENTIRE Goal Value
rity × Selling Price × (1 −
Goal Value exist in columns A,
able Cost % + Food Cost %))

Goal Value
401.3
478.6
200.9
273.5
354.4
436.8
455.7

370.0

Goal Value

382.4

alue?

ges. Chapter 10
Q2
alue?

ges.

Chapter 10
Q2
Chapter 10, Question 3

Eunice manages a Thai restaurant in a primarily Asian section of a major West Coast city. She is
interested in determining dollar sales and number of guests needed to break even and to generate
her desired profits. Her check average (selling price) is $16.00, her variable cost per unit (guest) is
$5.60, and her fixed costs are $170,000.

3. a.
a. Complete the following grid, and determine her before-tax profit.

Per Unit (Guest) Percentage

SP $16.00 100%
VC $5.60 35%
CM $10.40 65%

Fixed costs $170,000.00

Desired after-tax profit $24,000.00
Tax rate 40%
Before-tax profit $40,000.00

3.b.
Using the information from part a, calculate the following. (Spreadsheet hint: Use the ROUNDUP
function for “Rounded up—Break-even point in guest served” and “Rounded up—Guests served to
achieve desired after-tax profit.”)

Break-even point in sales

dollars $261,538.46

Break-even point in guests

served 16,346.2 Rounded up = 16,347

Sales dollars to achieve

desired after tax profit $323,076.92

Guests served to achieve

desired after tax profit 20,192.3 Rounded up = 20,193

3.c.
Based on her calculations, Eunice doesn’t think that she can attract as many guests as she needs
to achieve her desired after-tax profit. Therefore, she has decided to make some changes to
improve her situation. Due to these changes, she has been able to reduce her selling price by
$1.00, decrease her variable cost percentage by 5%, and lower her fixed costs by $5,000. After
these changes, what are Eunice’s sales dollars and guests served to achieve her after-tax profit?
Complete the following grid and calculations. (Spreadsheet hint: Use the ROUNDUP function for
Chapter
“Rounded 10
up—Guests served to achieve desired after-tax profit.”)
Q3
Based on her calculations, Eunice doesn’t think that she can attract as many guests as she needs
to achieve her desired after-tax profit. Therefore, she has decided to make some changes to
improve her situation. Due to these changes, she has been able to reduce her selling price by
$1.00, decrease her variable cost percentage by 5%, and lower her fixed costs by $5,000. After
these changes, what are Eunice’s sales dollars and guests served to achieve her after-tax profit?
Complete the following grid and calculations. (Spreadsheet hint: Use the ROUNDUP function for
“Rounded up—Guests served to achieve desired after-tax profit.”)

Per Unit (Guest) Percentage

SP $15.00 100%
VC $4.50 30%
CM $10.50 70%

Fixed costs $165,000.00

Sales dollars to achieve

desired after tax profit $292,857.14

Guests served to achieve

desired after tax profit 19,523.8 Rounded up = 19,524

Chapter 10
Q3
Chapter 10, Question 4

Sinqobile runs a restaurant in an East Coast city that specializes in African-American cuisine.
She has compiled her sales and cost data from last year, and she wants to develop a budget
for this year. She has projected the following increases for this year:
Projected Increases
Meals served 3%
Selling price per meal 2%
Cost of food 5%
Cost of labor 10%
Other expenses 2%
Using this information, help Sinqobile complete her budget.

Last Year Budget

Meals served 122,000 125,660
Selling price per
meal $12.50 $12.75

Last year's food cost per meal: $5.00

Last year's food cost per meal + Estimated increase: $5.25
Estimated cost of food this year: $659,715.00

Last year's labor cost per meal: $4.00

Last year's labor cost per meal + Estimated increase: $4.40
Estimated cost of labor this year: $552,904.00

Last Year $ Last Year % Budget $ Budget %

Revenue $1,525,000.00 100.0% $1,602,165.00 100.0%
Cost of food $610,000.00 40.0% $659,715.00 41.2%
Cost of labor $488,000.00 32.0% $552,904.00 34.5%
Other expenses $245,760.00 16.1% $250,675.20 15.6%
Total expenses $1,343,760.00 88.1% $1,463,294.20 91.3%
Profit $181,240.00 11.9% $138,870.80 8.7%

The owner of the restaurant has requested that Sinqobile make at least a 10 percent profit for this year.
Based on her budget figures, is she likely to meet this goal? If not, what can she do to achieve a 10
percent profit?

Answer: 8.7%>10% So she will not meet this goal. She needs to find ways to lower her food cost and
labor cost.

Chapter 10
Q4
Chapter 10, Question 5

Sitabiso manages an executive dining room in an office building of a major food manufacturing
company. Her sales, on average, run between $17,000 and $21,000 per week. She has decided to
use yardstick standards for labor to predict labor costs for varying sales levels. With these data, she
can determine if variations in her expenses are due to changes in sales volume or other reasons
such as waste or theft. She has compiled information from last year to help her predict her weekly
labor costs. Using this information, help Sitabiso complete her yardstick standards for labor.
(Spreadsheet hint: Use the ROUND function for “% Cost to Total Sales” column. Also, round to 3
decimal places, e.g., 0.123 or 12.3%.)

Yardstick Standards for Labor

Total Sales: $900,000 Average Sales per Month: $75,000

Labor Costs:
Management $84,000
Food Production 143,000
Service 27,600
Sanitation 34,200
Total 288,800

Weekly Sales Estimate

% Cost to
% Cost to Total
Category Total Cost Sales $17,000 $18,000 $19,000 $20,000
Management 29.1% 9.3% $1,581 $1,674 $1,767 $1,860
Food production 49.5% 15.9% $2,703 $2,862 $3,021 $3,180
Service 9.6% 3.1% $527 $558 $589 $620
Sanitation 11.8% 3.8% $646 $684 $722 $760
Total 100.0% 32.1% $5,457 $5,778 $6,099 $6,420

Chapter 10
Q5
timate

$21,000
$1,953
$3,339
$651
$798
$6,741

Chapter 10
Q5
Chapter 10, Question 6

Toni Lamazza is developing next year’s foodservice budget for the Springdale school system,
consisting of 17 different schools in a two-county area. Toni knows the revenue she will get from
the school board, but is not sure how much the board will give her to pay for anticipated
increases in employee benefits. Complete the chart below to help Toni determine the amount
employee benefits can increase and still allow her to show a budget surplus.

Budget with Employee Benefits Increases

Current Budget 5% Increase 10% Increase

Revenue $ 7,000,000 $ 7,000,000 $ 7,000,000
Cost of Food $ 2,095,000 $ 2,095,000 $ 2,095,000
Cost of Payroll $ 3,700,000 $ 3,700,000 $ 3,700,000

Cost of Employee Benefits $ 700,000 $ 735,000 $ 770,000

Other Expenses $ 400,000 $ 400,000 $ 400,000
Total Costs $ 6,895,000 $ 6,930,000 $ 6,965,000
Budget Surplus/ Deficit $ 105,000 $ 70,000 $ 35,000

At what level of employee benefit cost increase will Toni have a “break-even”
budget? How much would her surplus/deficit be if benefits increase by 20
percent?

Answer: 15% increase will have a breakeven budget. Deficit by 35000 when she
has 20% increase.

Chapter 10
Q6
yee Benefits Increases

15% Increase 20% Increase

$ 7,000,000 $ 7,000,000
$ 2,095,000 $ 2,095,000
$ 3,700,000 $ 3,700,000

$ 805,000 $ 840,000
$ 400,000 $ 400,000
$ 7,000,000 $ 7,035,000
$ - $ (35,000)

Chapter 10
Q6
Chapter 10, Question 7

J. D. McAllister is really happy. He has just succeeded in securing a $2,000,000 bank loan with a
variable percentage interest rate to build his dream restaurant. J. D.’s loan is for 25 years, and it carries
an interest rate that is set at 7 percent for the first year (this year). Thus, his first year’s monthly interest
payments will be $14,136. An experienced restaurateur, J. D. has prepared the following annual budget
for this year.

Annual Budget for This Year

Total Sales $2,046,000.00

Variable Costs
Food 429,660.00
Beverage 257,796.00
Labor 572,880.00
Other Variable Costs 171,864.00
Total Variable Costs $1,432,200.00

Fixed Costs (excluding loan repayment) $239,568.00

Loan Repayment (7% interest) 169,632.00
Total Fixed Costs $409,200.00

Before Tax Profit $204,600.00

Taxes (40%) 81,840.00
After Tax Profit $122,760.00

J. D.’s interest rate will likely vary over the life of the loan because it is tied to the prime interest rate
established by the Federal Reserve Board (part of the federal government). Assume the Fed increases
interest rates next year by 0.5 percent, and thus J. D.’s interest rate moves to 7.5 percent. As a result,
his new monthly loan repayment will be $14,780.
Also assume that his total variable cost percentage and fixed costs (excluding the increased loan
repayment) will be the same next year, and his check average (selling price) will be $20 per cover. With
the higher mortgage payment, what sales dollars and number of guests served will J. D. need to achieve
next year to maintain the same number of after-tax profit dollars as he budgeted for this year?

Per Unit (Guest) Percentage

SP $20.00 100%
VC $14.00 70%
CM $6.00 30%

Fixed costs (excluding loan repayment) $239,568.00

Loan repayment (7.5% interest) $177,360.00

Chapter 10
Q7
Total fixed costs $416,928.00
Desired after-tax profit $122,760.00
Tax rate 40%
Before-tax profit $204,600.00

Sales dollars to achieve desired after-tax profit $2,071,760.00

Guests served to achieve desired after-tax profit 103,588

Chapter 10
Q7
Chapter 10, Question 8

V. K. Sing is the manager of the Knight Kap restaurant. V. K. is preparing his budget for next year
and would like to estimate his beverage revenue and expense. V. K. kept careful sales and cost
records from last year, and these are listed below.

Last Year Beverage Revenue and Expense: Knight Kap

Guests Served Selling Price Beverage Cost
Beer 3,500 $8.50 $1.70
Wine 4,800 $16.00 $4.80
Spirits 2,500 $12.00 $1.80

V. K. has made the following assumptions about next year:

• The cost he will pay for alcoholic beverages will increase by 2 percent in all of the beverage
categories.
• V. K. will increase the selling price of all alcoholic beverages by 5 percent.
• The number of guests served will increase by 2 percent for beer, 2 percent for wine, and 3 percent
for spirits.
To help V. K. prepare next year’s beverage revenue and expense budget, calculate the following for
each of his three beverage types:
1. Forecasted total beverage revenue
2. Forecasted total beverage cost
3. Forecasted beverage cost percentage

Projected Changes (Percentage Increases or Decreases)

Guests Served Selling Price Beverage Cost
Beer 2% 5% 2%
Wine 2% 5% 2%
Spirits 3% 5% 2%

Forecasted Beverage Revenue and Expense Forecast: Knight Kap

Total Beverage
Guests Served Selling Price Beverage Cost
Revenue
Beer 3,570 $8.93 $1.73 $31,862.25
Wine 4,896 $16.80 $4.90 $82,252.80
Spirits 2,575 $12.60 $1.84 $32,445.00
Total $146,560.05

Chapter 10
Q8
Total Beverage Beverage
Cost Cost %
$6,190.38 19.4%
$23,970.82 29.1%
$4,727.70 14.6%
$34,888.90 23.8%

Chapter 10
Q8
Chapter 10, Question 9

The Wheatfield Valley golf course has been owned by the Miley family for two generations.
Currently, it is managed by Cyrus Miley, a graduate of State University, where he majored in
hospitality management. Last year was a good one for the golf course. Now Cyrus is preparing
next year’s operating budget. He has gathered a great deal of information to help him prepare the
best budget possible. After carefully analyzing that information, Cyrus predicts that next year the
course will experience:
• A 5 percent increase in food sales
• A 3 percent increase in beverage sales
• No change in food or beverage product cost percentage
• Salaries and wages (management and staff) that will increase 4.5 percent
• Employee benefits that will increase 10 percent
• An increase of 2.5 percent in each Other Expense category
• No change in Occupancy Costs and Depreciation & Amortization
• Interest payments of $1,000 per month
• Tax payments that are estimated to be 25 percent of income before income taxes
Calculate this year’s operating percentages for the food and beverage department on the budget
worksheet provided, and then using his assumptions about next year, create Cyrus’s new
operating budget in dollars and percentages.

The Wheatfield Valley Golf Course

F&B Department
Budget Worksheet for Next Year
This Year Next Year
Actual $ % Budget $ %
SALES
Food $173,250.00 75.33% 181,912.50 75.68%
Beverage 56,750.00 24.67% 58,452.50 24.32%
Total Sales 230,000.00 100.00% 240,365.00 100.00%
COST OF SALES
Food $58,250.00 33.62% 61,162.50 33.62%
Beverages 9,375.00 16.52% 9,656.25 16.52%
Total Cost of Sales 67,625.00 29.40% 70,818.75 29.46%
LABOR
Management $9,000.00 3.91% 9,405.00 3.91%
Staff 27,250.00 11.85% 28,476.25 11.85%
Employee Benefits 6,200.00 2.70% 6,820.00 2.84%
Total Labor 42,450.00 18.46% 44,701.25 18.60%
PRIME COST 110,075.00 47.86% 115,520.00 48.06%
OTHER CONTROLLABLE EXPENSES
Direct Operating Expenses $13,200.00 5.74% 13,530.00 5.63%
Utilities 5,975.00 2.60% 6,124.38 2.55%
General & Administrative Expenses 6,375.00 2.77% 6,534.38 2.72%
Repairs & Maintenance 1,750.00 0.76% 1,793.75 0.75%
Total Other Controllable Expenses 27,300.00 11.87% 27,982.50 11.64%
CONTROLLABLE INCOME 92,625.00 40.27% 96,862.50 40.30%

Chapter 10
Q9
NON-CONTROLLABLE EXPENSES
Occupancy Costs $15,000.00 6.52% 15,000.00 6.24%
Equipment Leases 0.00 0.00% 0.00 0.00%
Depreciation & Amortization 4,200.00 1.83% 4,200.00 1.75%
Total Non-Controllable Expenses 19,200.00 8.35% 19,200.00 7.99%
RESTAURANT OPERATING INCOME 73,425.00 31.92% 77,662.50 32.31%
Interest Expense $12,000.00 5.22% 12,000.00 4.99%
INCOME BEFORE INCOME TAXES 61,425.00 26.71% 65,662.50 27.32%
Income Taxes 15,356.25 6.68% 16,415.63 6.83%
NET INCOME 46,068.75 20.03% 49,246.88 20.49%

Chapter 10
Q9
Chapter 10
Q9
Chapter 10, Question 10

Menu analysis is typically associated with commercial foodservice operators who charge
individual selling prices for their menu items. In many cases, however, noncommercial (nonprofit)
foodservice operators receive a fixed amount of money per guest served regardless of the menu
items selected by the guest. Those managers in charge of foodservice in a college residence
hall’s cafeteria, a senior living facility, and a military base are just three of many such examples.
 
Despite the differences in how they charge for the items they serve, however, managers in both
commercial and noncommercial operations are concerned about guest acceptance of the menu
items they offer. What are some specific ways formal menu analysis (e.g., goal value analysis)
can help noncommercial managers address this important issue?

Answer: First, they can calculate item popularity. They can divide the number sold for individual
items by the total number sold to get the item popularity for every item. Then next time when
they prepare the menu items they can do it base on the item popularity percentage. Second,
they can use goal value formula where A*B*C*D=Goal value where A =1-FOOD COST%, B=item
popularity, C=selling price and D =1-(Variable cost%+food cost%).

Chapter 10
Q 10