a. As a step in preparation of the 4C Companyâ€™s preliminary budget for Year 2008, calculate the forecast sales revenue based on Year 2007 actual results adjusted as follows: dinner seat turnover figures will not change (see Case 6). Note that at lunch the guest-count figure will increase as a result of the advertising plan (Case 7). The average food check for lunch will increase by $0.60 while the average beverage check for lunch will increase by $0.20. For dinner, the average food check will increase by $0.55 while the average beverage check will increase by $0.40. No additional seats will be added in the restaurant, and operating days will remain the same. Calculate the total forecast sales revenue for food and beverages.
b. Complete the budgeted income statement for Year 2008 with reference to Case 8 (for fixed and variable cost data) and the following additional information:
â– Food and beverage variable cost of sales percentages will remain as in Year 2007 (Case 3).
â– Salaries and wages. First deduct Charlieâ€™s salary of $18,000 from the Year 2007 total. Add the cost of the new employee to be hired as the result of the newspaper advertising (see Case 7). Apply a general across-the-board 4% increase for all employees (except Charlie) for Year 2008. Then add on Charlieâ€™s salary, which will be $35,000 and is considered as a fixed cost next year.
â– Laundry variable cost percentage to sales revenue will remain unchanged.
â– Kitchen fuel. Fixed amount will increase by $400; the variable portion percentage to sales revenue will remain unchanged (Case 8).
â– China and tableware and glassware variable costs percentages to sales revenue will remain unchanged (Case 8).
â– Contract cleaning. A $600 increase is anticipated in Year 2008.
â– Licenses. No change is anticipated.
Â â– Other operating variable cost percentages to total sales revenue will not change (Case 8).
â– Administrative and general. A 5% increase should be budgeted for in Year 2008.
â– Marketing. The only increase will be the $3,000 to be spent on newspaper advertising (Case 7).
â– Utilities costs. The fixed cost is expected to rise by $2,000, and the variable portion percentage to sales revenue will be as before (Case 8).
â– Insurance. A 10% increase is expected.
â– Rent. As agreed with the building owner, rental expense is to increase by 10%, as was contracted for after the first year (Case 2).
â– Interest expense will decrease to $19,500.
â– Depreciation will continue to use the straight-line depreciation basis.
â– Income tax will be 22% of operating income (before tax).
c. Assume Charlie achieves the results in the Year 2008 budget. Using the budgeted income statement for Year 2008, compare it to the actual results for Year 2007 (Case 2). Discuss the dollar and percent changes to cost of sales, operating expenses, operating income, and net income. Also use commonsize analysis to compare the Year 2008 budget and the Year 2007 actual (Case 3). If Charlie achieves the Year 2008 budget, will the operations be financially successful?