Gilman?s Caf? is a popular restaurant in a local tourist town. Sarah Gilman, who opened the restaurant five years ago, has seen it grow steadily.Currently, Gilman?s is only open for dinner, but many of her regular customers have been asking Sarah to consider opening for lunch as well.Sarah has been talking to her accountant about the financial impact of the expanded services on the overall business. She knew that the caf? did not make much money and she was concerned that the new business might be too risky. The accountant asked her for her best estimates on the impact of the new business on revenues and costs. She had been thinking about this for some time and estimates that revenues would grow by about 25 percent.Food costs would increase by about 40 percent and labor costs by about 20 percent. Her rent would not change, but utilities would increase by about 25 percent. Other costs would increase by 15 percent. The salary she pays herself as manager of the caf? would not change. A few days later, her accountant stops by with the following estimated income statement assuming she adds the lunch business.

Requireda. Based on the financial impact, should Sarah open the caf? for lunch? Explain.b. Are there other factors she should consider? Explain briefly.

Transcribed Image Text:

Gilman's Café Annual Income Statement 3 (Assuming Both Lunch and Dinner Services) 4 5 Sales revenue $ 675,000 6 Costs $ 196,000 Food costs 270,000 Labor 36,000 Rent 10 Utilities 52,500 11 Other costs 39,100 12 Manager's salary 13 Total costs 60,000 $ 653,600 Operating profit (loss) $21,400 14 15 16 00