MBA 5100 Case Study 1 Summer 2020 Block 1 The summer of 2020 Bases several challenges for you as a recently hired MBA intern. You are hired to work in a consulting capacity (while working remotely) to provide an analysis for Al Dente's Italian Restaurant, a small family owned business in the North End. A financial income Statement is presented below: Sales $4,575,808 Cost of sales (all variable) $2,641,626 Gross Margin $1,934,182 Operating expenses: Variable $471,446 Fixed $362,393 Total operating expenses: $833,838 Administativs expenses (all fixed) $957,180 Net operating income $143,164 This income statement presents the sales, expenses and pre-tax operating income for a local eating facility. At Al Dente, the average meal cost for lunches and dinners are $20 and $40 respectively. Al Dente serves both lunch and dinner 300 days per year and serves twice as many lunches as dinners. As the MBA inteco, you are to prepare a managerial accounting focused report to the owners of Al Dente's Italian Restaurant, to include the following: 1. Prepare a santribution packinjaseme statement using the given financial data. Use the following format: Sales Variable costs Cost of sales Orstating Total variable costs Contribution margin Fixed costs Operating Administrative Total fixed costs Net operating income 2. Compute the break-even volume of the number of lunches and dinners. Assume that the CM for each meal category is the same as the average CM as calculated in #1. Hint: To solve a break even sales mix, use the horizontal formula: Net operating income = ($Sales - Variable costs - Stixed costs Net operating income SCM-fixed costs At Breakeven, NOI = $0 Therefore, $CM = $ Fixed costs Now solve for the unit $CM for each item. Let X be the number of dinners, 2x the number of lunches. SCM is the combined total of the SCM for dinners, and the $CM for lunches 3. Using the CM income statement format, verity that your calculated break-even volume for unches and dinners results in a NOI of zero hint: in your prepared CM statement from preskout the Sales dollars into subcategories lunch and dinner as shown below, using the values of X for in the # of meals cells) Present the entire CM statement at the BE level. The owner of the restaurant is thinking of increasing sales through additional advertising which he will incur as an administrative expense. The proposed additional advertising campaign will cost $27,000. He anticipates that the additional advertising expense will result in an additional 6 lunches and 3 dinners on average per day. Illustrate the impact on NOI suming the changes above (hint: show a revised CM statement). Hint: for this type of what t.compare the additional contribution margin impact on NOI given the change in units and change in fixed costs. s. In order to increase NOI, the owner of the restaurant is considering joining a food co-op to ower the cost of goods used in the restaurant. Membership in this co-op is estimated at $100,000 each year. It is possible that the quality of food ingredients through the co-op may pe slightly lower in quality than those currently used. Rather than to continue using premium Ingredients, the use of average quality ingredients through the co-op would reduce the cost of food by 10%. The owner proposes to not change the current meal pricing As the consultant, prepare a memo to the owner that presents the pros and cons of this change in operations. What are the potential impacts on revenue, costs, and net operating income may result from this change! The owner does not want to see a decrease in net operating income. Could the owner make this change and absorb the cost of the co-op membership and a decrease in customers, and how would you demonstrate numerically to support your analysis: What other factors or consequences of this decision should the owner consider besides the financial impact of the change! Hint: the qualitative analysis is to be thorough. Expect to present 400 words or so, and support your analysis using calculated or given accounting data. Use a memo format to write your response. A word document is recommended but a properly formated cell in your spreadsheet may suffice