Chapter:Dave Operations Budgeting and Cost-variance-profit Analysis

1. Which of the following methods for projecting revenues in the budgeting process assumes that past trends are good predictors of future growth?

Revenue history

Inflation adjustment

Competitive analysis

Expense history

Revenue history is the correct answer because it assumes that past trends in revenue can be used to predict future growth. By analyzing the patterns and trends in past revenue data, organizations can make informed projections about their future revenue streams. This method assumes that historical data is a reliable indicator of future performance and can be used as a basis for budgeting and forecasting.

Explanation

Revenue history is the correct answer because it assumes that past trends in revenue can be used to predict future growth. By analyzing the patterns and trends in past revenue data, organizations can make informed projections about their future revenue streams. This method assumes that historical data is a reliable indicator of future performance and can be used as a basis for budgeting and forecasting.

2. At the Virtual Café, the average price per meal sold is $15 with an average variable cost of $7. Fixed costs for July are expected to be $30,000. If the restaurant manager expects to sell $5,000 meals in July, the net income (or loss) for the month would be:

$25,000 net income

$10,000 net income

$0 (breakeven)

$10,000 net loss

The net income for the month can be calculated by subtracting the total variable costs and fixed costs from the total revenue. The total revenue can be found by multiplying the average price per meal sold ($15) by the number of meals sold (5,000), which equals $75,000. The total variable costs can be found by multiplying the average variable cost per meal ($7) by the number of meals sold (5,000), which equals $35,000. The fixed costs are given as $30,000. Therefore, the net income can be calculated as $75,000 - $35,000 - $30,000 = $10,000.

Explanation

The net income for the month can be calculated by subtracting the total variable costs and fixed costs from the total revenue. The total revenue can be found by multiplying the average price per meal sold ($15) by the number of meals sold (5,000), which equals $75,000. The total variable costs can be found by multiplying the average variable cost per meal ($7) by the number of meals sold (5,000), which equals $35,000. The fixed costs are given as $30,000. Therefore, the net income can be calculated as $75,000 - $35,000 - $30,000 = $10,000.

3. Which of the following budgeting processes ensures that plans are specifically geared to individual operations within multi-unit food service companies?

Reforecasting

Bottom-up budgeting

Top-down budgeting

Mark-up budgeting

Bottom-up budgeting is a budgeting process that ensures plans are specifically geared to individual operations within multi-unit food service companies. In this approach, each unit or department within the organization is responsible for creating its own budget based on its specific needs and goals. These individual budgets are then aggregated to create an overall budget for the entire company. This approach allows for greater accuracy and accountability at the operational level, as each unit has a clear understanding of its own requirements and can tailor its budget accordingly.

Explanation

Bottom-up budgeting is a budgeting process that ensures plans are specifically geared to individual operations within multi-unit food service companies. In this approach, each unit or department within the organization is responsible for creating its own budget based on its specific needs and goals. These individual budgets are then aggregated to create an overall budget for the entire company. This approach allows for greater accuracy and accountability at the operational level, as each unit has a clear understanding of its own requirements and can tailor its budget accordingly.

4. Which of the following is the most likely to be classified as a variable cost?

General manager’s salary

Rent expense

Property taxes

Food costs

Food costs are the most likely to be classified as a variable cost because they directly vary with the level of production or sales. As the business produces more or sells more, the cost of food will increase. Conversely, if production or sales decrease, the cost of food will also decrease. This is in contrast to the other options: the general manager's salary, rent expense, and property taxes, which are typically fixed costs that do not vary with production or sales levels.

Explanation

Food costs are the most likely to be classified as a variable cost because they directly vary with the level of production or sales. As the business produces more or sells more, the cost of food will increase. Conversely, if production or sales decrease, the cost of food will also decrease. This is in contrast to the other options: the general manager's salary, rent expense, and property taxes, which are typically fixed costs that do not vary with production or sales levels.

5. Costs that remain constant in the short term, even though sales volume may vary, are called ________ costs

Variable

Mixed

Allocated

Fixed

Fixed costs are costs that do not change regardless of the sales volume. These costs remain constant in the short term and do not fluctuate with changes in production or sales. They are often associated with expenses such as rent, salaries, insurance, and utilities, which do not directly depend on the level of output. Fixed costs are important for businesses to consider when analyzing their cost structure and determining the breakeven point.

Explanation

Fixed costs are costs that do not change regardless of the sales volume. These costs remain constant in the short term and do not fluctuate with changes in production or sales. They are often associated with expenses such as rent, salaries, insurance, and utilities, which do not directly depend on the level of output. Fixed costs are important for businesses to consider when analyzing their cost structure and determining the breakeven point.

6. Using the percentage method for estimating expenses, if the current beverage cost is 20 percent and projected beverage revenue is $60,000, the estimated beverage cost in dollars for the new budget period would be:

$12,000

$48,000

$72,000

$80,000

The percentage method for estimating expenses involves calculating the estimated cost based on a percentage of the projected revenue. In this case, the current beverage cost is 20 percent of the projected beverage revenue of $60,000. To find the estimated beverage cost for the new budget period, we multiply the projected revenue by the percentage: 20% of $60,000 is $12,000. Therefore, the estimated beverage cost in dollars for the new budget period would be $12,000.

Explanation

The percentage method for estimating expenses involves calculating the estimated cost based on a percentage of the projected revenue. In this case, the current beverage cost is 20 percent of the projected beverage revenue of $60,000. To find the estimated beverage cost for the new budget period, we multiply the projected revenue by the percentage: 20% of $60,000 is $12,000. Therefore, the estimated beverage cost in dollars for the new budget period would be $12,000.

7. At the 120-seat Riverside Restaurant, total variable costs for September were $12,000. For October, the manager expects to sell 10 percent more meals than in September. If the increase in sales volume occurs, the manager should expect the total fixed costs for October to be:

Lower than in September

Higher than in September

Relatively the same as in September

Impossible to forecast with any accuracy

The correct answer is "relatively the same as in September" because fixed costs do not change with the level of production or sales. Since the increase in sales volume is only 10%, it is unlikely to have a significant impact on fixed costs. Therefore, the manager should expect the total fixed costs for October to be relatively the same as in September.

Explanation

The correct answer is "relatively the same as in September" because fixed costs do not change with the level of production or sales. Since the increase in sales volume is only 10%, it is unlikely to have a significant impact on fixed costs. Therefore, the manager should expect the total fixed costs for October to be relatively the same as in September.

8. The Daylight Diner expects to sell 6,000 meals during the upcoming month with an average variable cost per meal sold of $6, if total fixed costs are expected to be $24,000, what would the average selling price per meal sold be if the operation is to meet its $12,000 profit goal for the month

$6

$8

$10

$12

To find the average selling price per meal sold, we need to calculate the total cost per meal and add the desired profit. The total cost per meal is the sum of the average variable cost per meal ($6) and the fixed cost per meal (total fixed costs divided by the number of meals, which is $24,000 divided by 6,000). This gives us a total cost per meal of $10. Adding the desired profit of $12,000 to the total cost per meal, we get a selling price per meal of $12.

Explanation

To find the average selling price per meal sold, we need to calculate the total cost per meal and add the desired profit. The total cost per meal is the sum of the average variable cost per meal ($6) and the fixed cost per meal (total fixed costs divided by the number of meals, which is $24,000 divided by 6,000). This gives us a total cost per meal of $10. Adding the desired profit of $12,000 to the total cost per meal, we get a selling price per meal of $12.

9. The Night Owl Restaurant expects to sell 6,000 meals during the upcoming month with an average variable cost per meal sold of $6. Total fixed costs are expected to be $24,000. The average selling price per meal sold at the breakeven point would be:

$4

$6

$8

$10

The breakeven point is the point at which total revenue equals total costs, resulting in zero profit. In this case, the fixed costs are $24,000 and the variable cost per meal is $6. To find the breakeven selling price per meal, we need to divide the total costs by the expected number of meals. The total costs can be calculated by multiplying the variable cost per meal by the number of meals and adding the fixed costs. So, the total costs would be (6000 * $6) + $24,000 = $36,000. Dividing this by the number of meals (6000) gives us a breakeven selling price per meal of $6. Therefore, the correct answer is $6.

Explanation

The breakeven point is the point at which total revenue equals total costs, resulting in zero profit. In this case, the fixed costs are $24,000 and the variable cost per meal is $6. To find the breakeven selling price per meal, we need to divide the total costs by the expected number of meals. The total costs can be calculated by multiplying the variable cost per meal by the number of meals and adding the fixed costs. So, the total costs would be (6000 * $6) + $24,000 = $36,000. Dividing this by the number of meals (6000) gives us a breakeven selling price per meal of $6. Therefore, the correct answer is $6.

Chapter:Dave Operations Budgeting and Cost-variance-profit Analysis

1. Which of the following methods for projecting revenues in the budgeting process assumes that past trends are good predictors of future growth?

2.

What first name or nickname would you like us to use?

2. At the Virtual Café, the average price per meal sold is $15 with an average variable cost of $7. Fixed costs for July are expected to be $30,000. If the restaurant manager expects to sell $5,000 meals in July, the net income (or loss) for the month would be:

3. Which of the following budgeting processes ensures that plans are specifically geared to individual operations within multi-unit food service companies?

4. Which of the following is the most likely to be classified as a variable cost?

5. Costs that remain constant in the short term, even though sales volume may vary, are called ________ costs

6. Using the percentage method for estimating expenses, if the current beverage cost is 20 percent and projected beverage revenue is $60,000, the estimated beverage cost in dollars for the new budget period would be:

7. At the 120-seat Riverside Restaurant, total variable costs for September were $12,000. For October, the manager expects to sell 10 percent more meals than in September. If the increase in sales volume occurs, the manager should expect the total fixed costs for October to be:

8. The Daylight Diner expects to sell 6,000 meals during the upcoming month with an average variable cost per meal sold of $6, if total fixed costs are expected to be $24,000, what would the average selling price per meal sold be if the operation is to meet its $12,000 profit goal for the month

9. The Night Owl Restaurant expects to sell 6,000 meals during the upcoming month with an average variable cost per meal sold of $6. Total fixed costs are expected to be $24,000. The average selling price per meal sold at the breakeven point would be: