Chapter 9: Discussion Questions (Pg 404-405)
2. What are some of the purposes of budgeting?
4. Explain the difference between long- and short-term budgeting.
9. A cocktail lounge had May sales revenue of $40,000, budgeted revenue was $42,000. Create three questions to analyze the variance.
10. What factors need to be considered to project breakfast sales for a hotel coffee shop?
12. List the four items which must be multiplied to forecast total annual dinner food sales at a restaurant.
Chapter 9: Exercises (Pg 405-407)
E9.1 A restaurant has 100 seats with an average turnover of 2.5, and an average check of $14.75. If the restaurant is open 260 days/year, what is the annual sales revenue?
Number of seats 100
Seat turnover/day 2.5
Average check $14.75
Days open per year 260
Estimated annual revenue
Annual sales revenue formula:
E9.2 A motel has 80 rooms, an occupancy rate of 62% and an average room rate of $74.00. What is the estimated sales revenue for the month of April?
Number of rooms 80
Occupancy rate 62%
Average room rate $74.00
Days in April 30
Estimated April revenue
Monthly sales revenue formula:
E9.3 A motel budgets 8,000 rooms sold at a price of $82.00/room. Actual sales were 8,480 rooms at $77.00 each. Compute the price, volume and budget variances and indicate whether they are favorable or unfavorable.
Volume Price Variance Fav/Unfav?
Price Variance
Volume Variance
Budget Revenue Actual Revenue Variance Fav/Unfav?
Revenue Budget Variance
E9.4 A hotel budgets 6,400 rooms sold and housekeeping costs at $4.90/room. Actual sales were 6,250 rooms and actual costs were $4.40 per room. Compute the cost, volume and budget variances and indicate whether they are favorable or unfavorable.
Volume Cost Variance Fav/Unfav?
Cost Variance
Volume Variance
Budget Cost Actual Cost Variance Fav/Unfav?
Cost Budget Variance
E9.6 A motel has 45 rooms, an occupancy rate of 76% and an average room rate of $58.00. Fixed costs are $480,000 and the variable cost per room sold is $8.00. What is the estimated annual sales revenue and operating income?
Number of rooms 45
Occupancy.rate 76%
Average room rate $58.00
Days open per year 365
Estimated revenue
Fixed costs $4,80,000
Variable cost/room sold $8.00
Total variable costs
Operating income
Annual variable cost formula:
Operating income formula:
E9.7 An 80 seat coffee shop is open 365 days per year. What is the estimated annual sales revenue given the turnover and average check per meal data below?
Seats Turnover Avg check Days open
Breakfast 80 2.50 $7.80 365
Lunch 80 1.75 $8.75 365
Dinner 80 2.75 $11.25 365
Total projected revenue
E9.10 A restaurant has budgeted sales of $912,000. Variable costs are 72% of sales and fixed costs are $102,000. Calculate total variable costs, gross margin and operating income.
Sales $9,12,000
Variable cost rate 72%
Total variable costs
Gross margin
Fixed costs $1,02,000
Operating income
Chapter 9: Problem 9.1 (Pg 407)
P9.1 A motel has 40 rooms. During June average room rate is $80, occupancy is 74%. In July room rates increase by 10% and occupancy is 84%. In August rates are the same as July but occupancy is 92%. Calculate revenue each month.
Number of units 40
Average room rate June $80.00
Days in June
Occupancy rate June 74%
Estimated revenue June
Average room rate July
Days in July
Occupancy rate July 84%
Estimated revenue July
Average room rate August
Days in August
Occupancy rate August 92%
Estimated revenue August Chapter 9: Problem 9.2 (Pg 407)
P9.2 As manager of a 60 room motel you must prepare an annual budget. Occupancy will be 74%, average room rate is $84, variable cost per room sold is $8 and annual fixed costs are $825,000. Prepare the operating forecast and income statement below.
Number of rooms 60
Occupancy 74%
Days open 365
Average rate $84.00
Variable cost/room $8.00
Annual fixed cost $8,25,000
Annual rooms sold
Revenue
Variable cost
Fixed cost
Operating income
Chapter 9: Problem 9.5 (Pg 408)
P9.5 Buff’s Buffet wants a flexible budget prepared for three revenue levels: $800,000, $900,000 and $1 million. Variable costs include Food @ 38%, Labor @ 28% and Other @ 10%. Fixed costs include Salaries @ $52,000 and Other @ $120,000. Income tax rate is 29%. Prepare the three budgets.
Revenue level $8,00,000 $9,00,000 $10,00,000
Food cost 38%
Labor cost 28%
Other variable costs 10%
Total Variable Cost
Contribution Margin
Salaries $52,000
Other fixed costs $1,20,000
Total Fixed Cost
Operating Income
Income tax 29%
Net income
Comment on the results, especially the change in income compared to sales.
Using the Total Fixed Cost and the Variable Cost %, calculate the Break-Even Revenue level:
Total Fixed Cost
Total Variable Cost %
Break-Even Revenue
Chapter 9: Problem 9.6 (Pg 408)
9.6 A resort hotel’s dining room is fully dependent upon guests for its sales. The hotel has 150 rooms and 80% occupancy in June. Each occupied room averages 3 guests. The dining room serves 95% of guests at breakfast, 25% at lunch and 75% at dinner. The dining room is open every day for all meals and check averages are $7.50 for breakfast, $12.50 for lunch, $25.20 for dinner. Project dining room revenue by meal and in total for June.
Number of rooms 150
Occupancy rate 80%
Days in June
Rooms occupied in June
Average guests per room 3
Total guests
Dining room revenue Breakfast Lunch Dinner Total
Check average $7.50 $12.50 $25.20
Guests dining 95% 25% 75%
Revenue
Chapter 9: Problem 9.8 (Pg 410)
9.8 The owner of a restaurant is considering two alternatives to improve operating results. The first alternative reduces food costs from 42% to 37% by improved purchasing and reduced portions. No other changes. The second alternative also cuts food costs to 37% but also spends $2,000 on advertising to increase food and beverage sales by 20%. Extra customers will cause costs to increase in these categories: $2,000 in wages, $800 in supplies, $200 in administrative, $300 in repairs and $100 in utilities. Prepare the alternative projections.
Current Alternative I Alternative II Alternative I Alternative II
Sales – Food $40,000 $40,000 20% Added sales
Sales – Beverage 10,000 10,000 20% Added sales
Total Sales $50,000
Cost of Sales – Food 16,800 37% 37% Cost %
Cost of Sales – Beverage 3,000 30% 30% Cost %
Total Cost of Sales $19,800
Gross Margin $30,200
Operating Expenses
Wages 13,600 13,600 $2,000 Added expense
Supplies 4,000 4,000 $800 Added expense
Administrative & General 2,600 2,600 $200 Added expense
Advertising & Promo 1,800 1,800 $2,000 Added expense
Repair 900 900 $300 Added expense
Utilities 1,300 1,300 $100 Added expense
Depreciation 700 700 700
Interest 600 600 600
Total Expenses $25,500 $25,500
Operating Income $4,700
Advise the owner on which alternative to select and why.
Chapter 9: Problem 9.11 (Pg 412-413)
9.11 Prepare an operating budget for a 100 room motel with a 64% occupancy and $72.00 ADR. It has a 65 seat coffee shop open 7 days per week for all meals, a 75 seat dining room open 6 days per week for lunch and dinner only and a 90 seat cocktail lounge open 310 days per year which serves 20 food orders @ $8.50 per meal per day. Beverage sales are $5,250 per cocktail lounge seat and 15% of the combined lunch/dinner sales in the coffee shop and 25% of the combined lunch/dinner sales in the dining room. Variable costs are 35% for food, 32% for beverages, Note that for every 16 rooms occupied each day one housekeeping shift @ $8.50/hour is required. All variable cost rates and fixed costs are listed in the table. Prepare a contributory income statement for each revenue center and then prepare a consolidated income statement which included undistributed indirect expenses to arrive at EBITDA for the entire business.
Computation of room division revenue
Number of rooms 100
Occupancy rate 64%
Average room rate $72.00
Days open per year 365
Room sold
Rooms revenue
Computation of room division contributory income
Rooms revenue
Fixed wages $3,26,900
Housekeeping wages Housekeeping cost formula:
Total wages
Benefits (12% of wages)
Linen (6% of rooms revenue)
Supplies (3% of rooms revenue)
Total rooms cost
Rooms contributory income
Computation of dining room food revenue
Lunch Dinner Total
Check average $8.25 $14.00
Turnover 1.50 1.00
Days (6 days/week, 52 weeks/yr)
Seats 75 75
Total dining room revenue
Computation of coffee shop food revenue
Breakfast Lunch Dinner Breaks Total
Check average $5.75 $7.75 $9.95 $1.75
Turnover 1.00 1.50 1.00 6.00
Days (365/year)
Seats 65 65 65 65
Total coffee shop revenue
Computation of cocktail lounge food revenue
Check average $8.50
Orders per day 20
Days open per year 310
Total cocktail lounge food revenue
Computation of contributory income for food
Revenue
Dining room food revenue
Coffee shop food revenue
Cocktail lounge food revenue
Total food revenue
Cost for Food
Food cost 35%
Payroll 45%
Laundry 2%
Supplies 5%
Other costs 2%
Total operating cost
Food contributory income
Computation of beverage revenue
Cocktail lounge seats 90
$5,250 per cocktail seat
Coffee shop (15% of lunch+dinner)
Dining room (25% of lunch+dinner)
Total beverage revenue
Computation of contributory income for beverage
Beverage revenue
Liquor cost 32%
Payroll 25%
Supplies 5%
Total costs
Beverage contributory income
Overall contributory income statement
Contributory income
Room
Food
Beverage
Total contributory income
Fixed costs
Administrative $1,56,800
Marketing 1,47,600
Utilities 58,900
Operations & Maintenance 52,400
Insurance 15,300
Property taxes 82,100
Total fixed costs
EBITDA
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