1. If Dan and Lorelai decide to buy the restaurant,
some fixed costs they would have are:
·
Interest
·
Mortgage
·
Employee Benefits/Salaries & Wages
·
Utility Services
·
Property Tax
2.
If Dan and Lorelai operate the restaurant, some
variable costs they would have are:
·
Music and Entertainment
·
Food/Beverage Costs
·
Repairs and Maintenance
·
Direct Operating Expenses
·
Marketing
3. In
my opinion Lorelai’s decisions is the most important to ensure future profitability
of the Watershed. According to Pg. 326 in
Managerial Accounting for the Hospitality Industry “It is important to remember
that the goal of management is not to reduce, but to increase total variable
costs in direct relation to increases in total sales volume.” So
with Dan wanting to reduce cost but not increase sales it could Negatively impact
them. When sales volume increases the
cost of the sale will increase as well, "In the
restaurant business, each steak you sell requires that you purchase a steak to
replace it. The more steaks you sell, the higher your own steak cost will
become because your steak cost will increase when your steak sales increase and
decrease when your steak sales decrease" (Pg. 317, Managerial Accounting
for the Hospitality Industry) Assuming that the restaurant’s sales
volume last year was approximately $1,400,000, its loss for the year was about
$98,000, that would mean their revenue for this year is $1,302,000. “Using activity-based costing to examine expenses and thus better
manage a business is called activity-based management and it is just one
example of how fully understanding costs can help you make better decisions and
operate a more successful business.” (Pg. 316, Managerial Accounting for the
Hospitality Industry)
