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In: Accounting

Karen’s Restaurant has three sales revenue departments with direct costs and average monthly figures given in...

Karen’s Restaurant has three sales revenue departments with direct costs and average monthly figures given in the following information:

Departments

Dining

Banquets

Beverages

Sales revenue

$306,000

$165,000

$138,000

Cost of sales

$122,400

$62,700

$44,160

Wages and salaries cost

$97,920

$52,800

$19,320

Other direct costs

$27,540

$13,200

$2,760

The restaurant also has the following indirect, undistributed costs:

Administrative and general expenses       $18,000

Marketing expenses               $15,000

Utilities expense                   $ 7,500

Property operation and maintenance       $18,180

Depreciation expense               $21,000

Insurance expense               $ 6,000

Required:

Prepare a consolidated departmental contributory income statement showing each of the three divisions side by side for comparison. Do not allocate indirect costs.

Allocate the indirect costs to the divisions side by side for comparison. Administrative, general, and marketing costs are allocated based on sales revenue. The remaining indirect costs are allocated based on square footage used by each division: Round all percentage calculations to a whole percentage.

Dining 3,600 sq. ft.   Banquet 4,500 sq. ft.   Beverage 900 sq. ft.

After allocating the indirect costs, would you consider closing any of the divisions? Why or why not?

Calculate the contributory income percentage for each of the three divisions.

Calculate the cost of sales, wages and salaries costs, and other direct costs as a percentage of sales revenue for each of the divisions.

If there were a shift of $12,000 in sales revenue from the banquet area to the dining room, would you expect the restaurant’s overall operating income to increase or decrease? Explain your reasoning to support your answer.

Assuming that the shift of $12,000 of sales revenue does occur, total sales revenue will not change. Total indirect, undistributed costs will not change. Recalculate cost of sales, wages and salaries costs, and other direct costs for each division (using the percentages in 5 above) to find the new departmental operating income.

After allocating the indirect costs, would you now consider closing any of the divisions? Why or why not?

Solutions

Expert Solution

ekkarill92 answered 11 months ago
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