A restaurant’s average monthly income statement is as follows:

Sales Revenue:	Â	Â
Food sales revenue	$40,000	Â
Beverage sales revenue	10,000	Â
Total sales revenue	Â	$50,000
Cost of sales:	Â	Â
Food [45% of food revenue]	$18000	Â
Beverage [30% of beverage revenue]	3000	Â
Total cost of sales	Â	(21000)
Gross margin:	Â	$29000
Operating expense:	Â	Â
Wages expense	$13,600	Â
Operating supplies expense	4,000	Â
Administration & general expense	2,600	Â
Advertising & promotion expense	1,800	Â
Repairs and maintenance expense	900	Â
Utilities expense	1,300	Â
Depreciation expense	700	Â
Interest expense	600	Â
Total Operating Expenses	Â	(25,500)
Operating income	Â	3,500

The owner is considering two possible alternatives for the coming year: By improving purchasing and reducing portions, cutting the food cost from 45 percent to 40 percent of food sales revenue. There would be no other changes.

Cutting the food costs from 45 percent to 40 percent of food sales revenue and spending an additional $2,000 a month on advertising. It is estimated that the advertising would bring in extra customers and increase the volume of both food and beverage revenue by 20 percent over current levels. The extra customers would also incur extra costs over current levels as follows:

Wages	$2,000
Supplies	800
Administration	200
Repairs	300
Utilities costs	100

Prepare budgeted average monthly income statements for both alternatives and advise the owner which alternative you consider the best, and why.