Sunday, December 11, 2016

Week 9 EOC: Acquire the Restaurant

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) 

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