High and low points for the Restaurant Division Essay

Using the budget and existent Numberss as the high and low points for the Restaurant Division, the variable and fixed part of the Waitress and Busboy Wages Set out in a cost equation will be:

Ten Yttrium

Highest degree 194,400 18,000

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Lowest degree 167,040 15,368

27,360 2,632

Slope = Dy = 2,632 = 0.09

Dx 27,360

Substitute lowest value ( 167,040, 15,368 )

Y = a + bx

15,368 = a + 0.09 ( 167,040 )

a = 334

Therefore Y = 334 + 0.09x

Question Two

The high-low method will give you a speedy thought of which costs are fixed and which costs are variable ; nevertheless, to acquire more accurate estimations in the hereafter, the eating house director should enter the costs in distinguishable classs when they are incurred. They should be classified either as fixed or variable depending on how they are incurred.

It is of import to cognize which costs are fixed and which are variable for control intents. Costss must be classified by behavior for comparing existent and budgeted public presentation utilizing flexible budgets. Besides by sorting costs into fixed and variable classs, the results from different activity degrees can be examined. Categorization of costs by behavior besides helps in apportioning costs between cost of goods sold and stock lists for internal and external net income measuring and stock list ratings, supplying relevant information to assist directors to do better determinations and supplying information for planning, control and public presentation measuring.

Question Three

The major cost driver for the eating house division is ( volume ) the sum of nutrient and spirits gross revenues. The logical premise about the fixed cost is said to be fixed if that cost tends to stay unchanged in entire despite even comparatively broad fluctuations in degrees of end product or activity ; Managers ‘ Wages, Building Allocation and Administration. A variable cost is said to be variable if the entire cost alterations in proportion to alterations in the degrees of end product or activity ; Cost of Gross saless on nutrient and spirits, Waitress & A ; Busboy Wages, Supplies and Dish Washing.

Entire gross = SQ

Entire cost = VR + F

At Break event point SQ = VQ +F where F = Total Fixed Cost

Q = F S = merchandising monetary value

S-V V = Variable costs

Fixed costs = $ 98, 728

Variable costs = 91,746 ; per unit = $ 15.93

BEP ( units ) = F

S-V

BEP units = 98, 728

13.07

= 7,552

BEP in gross revenues Dollars = $ 219,028

In order to do a net income, the eating house division must do gross revenues of 7,552 units apart from increasing the monetary value to $ 29. This is more than 31 % of the current unit gross revenues and about 5 % more than the budgeted gross revenues. This implies that the eating house needs more activity to bring forth net incomes which is improbable to go on in the current state of affairs.

Question Four

The eating house should follow an income statement where the costs are divided among fixed and variable. The income statement should besides include figures on which costs relate to the hotel and the 1s that are allocated from the caput office. This will non merely mensurate the public presentation of the hotel but it will besides mensurate how the director is commanding costs in the caput office.

The ratio of the costs in direction, disposal and edifice that relate to the hotel and the caput office should besides be indicated so that the part of the hotel to settling caput office costs is shown decently.

The income statement should hold the undermentioned format:

Gross saless

Variable costs

Contribution

Fixed costs:

Hotel

Head Office

Operating income

All Numberss should be reported with the existent figures. For the allocated figures from the caput office, they should be reported on sum. For the costs appertaining to the hotel, their unit costs should be shown.

Question Five

The Restaurant Division should non be closed. This is because the eating house can be pulling clients for the suites division which would intend that its closing will hold a negative impact on the net income of the Rooms Division. The eating house besides helps the other net income doing Centres to provide for the caput office costs. If the eating house is closed, the caput office overheads allocated to it will be met by the other divisions which will do them study losingss besides.

The concern is at a low and spring is the lowest month for the eating house. Sing this implies that there are better tomes in front.

The eating house was allocated 64,100 as disposal disbursals some of them from the caput office, 5,000 as manageraa‚¬a„?s wages and 29,628 as edifice allotment costs. If it is closed, these costs will be borne by the other divisions and will devour the 5,750 net income of the room division.

Question Six

Cost drivers that exist in admiralaa‚¬a„?s hotel are ; activity based, volume based, structural, and executional cost drivers. Activity-based cost drivers are at the item degree of operations, for illustration, equipment apparatus, stuffs managing, and clerical or other undertakings. On the other manus, volume-based cost drivers are at the aggregative degree, that is, they relate normally to the figure of units produced. The cost of the activity increases as more units are processed. Structural cost drivers involve programs and determinations holding long-run effects ; executional cost drivers have short-run determination frames. The most of import volume-based constructs are variable costs, which change harmonizing to a alteration in the degree of end product, and fixed costs, which do non. Direct costs are defined as costs that can be traced straight to a cost object in contrast to indirect costs, which can non.

At the eating house, illustrations of these cost drivers are the undermentioned:

Activity based: linen, telephone lease.

Volume based: figure of visitants in the room division

Structural: edifice infinite allocated to each division

Executional: dish lavation

Question Seven

A productiveness step for the Restaurant Division ;

The best productiveness step is the part border ration. This is gross revenues monetary value less the variable cost per unit.

Contribution border = 29 -15.93

Contribution border ratio = 45 %

The part border is of import since show the director what is left to provide for fixed operating costs and disbursals when all the direct disbursals have been catered for. This therefore implies the degree where fixed costs should non transcend if the concern is supposed to interrupt even.

Question Eight

The general director uses volume as the footing of controls. This method is non the best in this state of affairs since volume do non ever ensue in productiveness. The director should be utilizing cost per unit of sale as the footing and at the same clip concentrating on allocated and costs incurred by the divisions as separate classs as control centres. The director should provide public presentation studies which compare existent public presentation with the planned public presentation and which hence highlight those activities which are non conforming to program. He should besides command the costs as per their behavior to guarantee that all type of costs is kept under cheque.

For control intents, direction requires estimations of costs and grosss at different degrees of activity for the alternate classs of action.