Problem 11-50         Performance Reporting

Fernando’s is a tiny sandwich shop just off the State University campus. Customers enter and place their orders at a small counter area. All orders are take-out because there is no space for dining in.

The owner of Fernando’s, Luis Azaria, is attempting to construct a series of budgets. He has accumulated the following information:

a.       The average sandwich (which sells for $4.50) requires 1 roll, 4 ounces of meat, 2 ounces of cheese, 0.05 head of lettuce, 0.25 of a tomato, and a healthy squirt (1 ounce) of secret sauce.

b.       Each customer typically orders one soft drink (average price $1.50) consisting of a cup and 12 ounces of soda. Refills are free, but this offer is seldom taken advantage of because the typical customer carries out his/her sandwich and soda.

c.        Use of paper supplies (napkins, bag, sandwich wrap, cups) averages $1,650 per month.

d.       Fernando’s is open for two 4-hour shifts. The noon shift on Monday  through  Friday requires two workers earning $10 per hour. The evening shift is only worked on Friday, Sat- urday, and Sunday nights. The two evening shift employees also earn $10 per hour. There are 4.3 weeks in a month.

e.        Rent is $575 per month. Other monthly cash expenses average $1,800.

f.        Food costs are:

Meat                                        $7.00/lb                Tomatoes (a box contains about

 

Cheese                                     $6.00/lb

Rolls                                        $28.80/gross

20 tomatoes)                                             $4/box

Secret sauce                                                  $6.40/gallon

Lettuce (a box contains 24 heads)

$12.00/box

Soda (syrup and carbonated water)             $2.56/gallon

In a normal month when school is in session, Fernando’s sells 5,000 sandwiches and 5,000 sodas. In October, State U holds its homecoming celebration. Luis figures that if he adds a noon shift on Saturday and Sunday of homecoming weekend, October sales will be 30% higher than normal. To advertise his noon shifts during homecoming weekend, Luis will buy cups emblaz- oned with the State U Homecoming schedule. This will add $200 to paper costs for the month. Last year, he added two additional shifts, and his sales goal was realized.

Required:

1.       Prepare a flexible budget for a normal school month.

2.       Prepare a flexible budget for October.

3.       CONCEPTUAL CONNECTION Do you think it was worthwhile for Luis to add the addi- tional shifts for homecoming weekend last October?