The Vegan Wagon Is Part of a Chain of Restaurants

question 71

Essay

The Vegan Wagon is part of a chain of restaurants and has been losing money in past months. Part of the problem has been a decline in sales. However, sales are expected to pick up during the summer months. In March, for example, the loss was $2,250.
Static Budget Actual
Revenue $80,000 $65,000
Costs:
Cost of ingredients 24,000 22,750
Serving personnel 20,000 19,000
Cashier 4,000 4,000
Administration 12,000 14,000
Corporate cost allocation 8,000 6,500
Utilities 1,500 1,000
Income (Loss)$10,500 $ (2,250)
The restaurant purchases ingredients directly from the chain and is charged in direct proportion to the number of meals served. Personnel paid by Vegan prepare and serve the food, tend the cash register, bus and clean tables, and wash dishes. The staffing levels in Vegan are rarely changed - the existing crew can handle modest fluctuations in volume. Administrative costs are largely the salaries of the manager and her staff. The chain allocates corporate costs based on revenue, and the usual charge is 10% of Vegan's revenue. Utilities are the costs of heating and lighting the restaurant during normal operating hours and are relatively unaffected by the amount of food prepared.
a)Develop a flexible budget for Vegan Wagon that could be used to evaluate the performance of the manager.
b)Calculate the variances for Vegan Wagon.
c)Identify the largest variance and list one question that you would ask the manager about that variance.

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Definitions:

Mycelia

The vegetative part of a fungus, consisting of a network of fine white filaments (hyphae) that spread into and feed on organic matter.

Carbon Dioxide

A gas that is colorless and without smell, created when carbon and organic substances are burned and during the breathing process. This gas is naturally occurring in the atmosphere and taken in by plants for the process of photosynthesis.

Ethanol

A volatile, flammable, colorless liquid alcohol, widely used as a fuel and in the manufacturing of various chemicals, and also found in alcoholic beverages.

Yeast

Unicellular fungus that has a single nucleus and reproduces asexually by budding or fission, or sexually through spore formation.