Best Beef Burgers operates a store in Melbourne and the following is its average monthly statement of profit or loss.

The owner is currently preparing the budget for next year and is considering the following alternatives.
1. Reducing the cost of sales for food from 50 per cent to 45 per cent. This would be achieved by reducing portions and improving purchasing. There would be no other changes.
2. Cutting the food cost from 50 per cent to 45 per cent and spending an additional $1500 on advertising. The advertising should attract new customers and increase the volumes of both food and beverage revenue by 20 per cent on present levels. The new customers would also cause monthly other operating expenses to increase as follows.

Required
Prepare a budgeted average monthly statement of profit or loss for both alternatives. Advise the owner which alternative you consider best, giving reasons.

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Revenue Food Beverages Cost of sales Food (50% of revenue) Beverages (20% of revenue) Gross profit Operating expenses Wages Operating supplies Administration Advertising Repairs and maintenance of equipment Utilities Depreciation Interest Profit before tax 60 000 20 000 30 000 4000 15 000 5000 3000 2500 1500 2500 1000 1000 80 000 34 000 46 000 31 500 14 500