Problem 17-38 Analyze Performance for a Restaurant (LO 17-5)

Dougs Diner is planning to expand operations and is concerned that its reporting system might need improvement. The master budget income statement for the Downtown Dougs, which contains a delicatessen and restaurant operation, follows (in thousands):

	Delicatessen						Restaurant						Total
Sales revenue		$	600					$	2,000				$	2,600
Costs
Purchases			360						1,100					1,460
Hourly wages			30						438					468
Franchise fee			18						39					57
Advertising			50						100					150
Utilities			42						63					105
Depreciation			25						38					63
Lease cost			15						25					40
Salaries			15						25					40
Total costs		$	555					$	1,828				$	2,383
Operating profit		$	45					$	172				$	217

The company uses the following performance report for management evaluation:

	DOWNTOWN DOUGS
	Net Income for the Year
	($000)
	Actual Results
Actual Results	Delicatessen						Restaurant				Total				Budget				Over- or (Under-) Budgeta
Sales revenue		$	700				$	1,000			$	1,700			$	2,600				$	(900	)
Costs
Purchasesb			450					400				850				1,460				$	(610	)
Hourly wagesb			35					350				385				468					(83	)
Franchise feeb			21					30				51				57					(6	)
Advertising			50					100				150				150
Utilitiesb			45					50				95				105					(10	)
Depreciation			25					38				63				63
Lease cost			15					25				40				40
Salaries			15					25				40				40
Total costs		$	656				$	1,018			$	1,674			$	2,383				$	(709	)
Operating profit		$	44				$	(18	)		$	26			$	217				$	(191	)

^a There is no sales price variance.

^b Variable costs; all other costs are fixed.

Required:

	Actual	Purchases Variances		Marketing & Administrative Variances		Flexible Budget	Activity Variance		Master Budget
Sales revenue	$700								$600
Variable costs:
Purchases	450								360
Hourly wages	35								30
Franchise fee	21								18
Utilities	45								42
Total variable costs	$551								$450
Contribution margin	$149								$150
Fixed costs:
Advertising	50								50
Depreciation	25								25
Lease	15								15
Salaries	15								15
Total fixed costs	$105								$105
Operating profit	$44								$45