Findings In order to understand the effects of opening the catering business, I looked at variable and absorption costing to figure out which method would be better suited for internal and external reporting in the past and future. In addition, I delved deeper to understand the cost breakdown of the new products which helped form a capital budget that will help us determine the validity of opening the catering business.
Inventory Effect on Net Income For November, there was an ending inventory of 500 units which led to an operating income of $72,357.03 under absorption costing and a $65,679.68 under variable costing . Due to ending inventory absorbing the fixed overhead cost under absorption costing as opposed to being directly expensed under variable costing, there was a smaller per unit fixed overhead expense under abortion which leads to a higher operating income under absorption costing. However, when the ending inventory decreases as seen in December, operating income was greater under variable costing than absorption costing . This is due to the additional expense of fixed overhead under absorption costing because the beginning inventory in December had prior month’s overhead costs. Under variable costing, the ending inventory did not absorb fixed cost, so this allowed the fixed overhead expense to be lower causing operating income to be higher.
Choice of Capacity
After looking at each capacity level, I suggest that the WSBS uses practical capacity for fixed
The Catering Services industry has struggled during the past five years. Since 2008-09, a severe economic downturn has led businesses and households to spend less on catered events. Businesses faced with plunging profitability cut back sharply on catered events such as office parties, corporate seminars and product launches, and reduced average spend per head for events that did go ahead. The deteriorating consumer climate led consumers to put off discretionary events and choose to cater events themselves or spend less at a restaurant rather than use the industry 's services.
1- The total unit cost = Total Variable Cost + Production Fixed Expenses + Advertising Expense + Selling and Administrative Expense = 3.23 + 1.20 + 0.30 + 0.19 = 4.92.
Because the absorption-costing model only deducts the fixed manufacturing overhead costs for units sold in the current period, the COO was able to show an increase in profits between 2002 and 2003. What the COO failed to report to the stakeholders on the 2003 income statement was the outstanding fixed manufacturing overhead costs for the remaining 35,000 units
One of the major benefits of expansion is the reduction of fixed cost (fixed and selling). The cost is absorbed by 85,000 units instead of 80,000 units resulting in saving of $0.42 per unit.
Another concern identified, is the utilities expense budget for utilities in Year 9 which is $150,000. This amount is identified as a fixed amount and is unrelated to actually production activities and manufacturing efficiency. Considering that production levels and activity fluctuates throughout the year, the budget for utilities should be a variable item. An example; from Year 7 to Year 8, the utilities expenses increase by $15,000 and with this detection, ways to reduce this expense should be investigate. Another concern is a duplicated line item under the Selling, General, and Administrative Budget for Utilities and Utilities and Services. Another issue for concern, Total Variable Cost was reported to be lower; however was not enough for the lack of sales combined with an increase in advertising and transportation which resulted in an overall negative result. The low Net Sales directly impacted the Contribution Margin which decreased by $49,397. Overall, these concerns indicate the need for a flexible budget with variance analysis.
Account/Description Manufacturing overhead Cost of goods sold Actual overhead costs Incurred on account Indirect materials Indirect labor Depreciation $120,000 14,000 20,000 8,000 $162,000 Applied overhead costs Job 7640 Job 7641 Job 7642 $43,200 57,600 66,000 $166,800 $162,000 166,800 $4,800
Kudler Fine Foods is a gourmet food store which also offers in store parties in order to introduce customers to their products and also teach customers how to prepare their specialty foods. They have expanded to three stores and are continuing to see growth opportunities in their industry. Kudler Fine Foods has planned on contracting with local growers to obtain their produce and now they want to add a catering service. Before they can do so, they must run the possibility fully through a marketing standpoint in order to assure the success of this project. This study will comprise of the opportunities Kudler Fine Food has in its marketing mix that will help them operate a successful catering business.
In this table, it reflects the changes in fixed plant overhead from $420,000 to $378,000. The company still has the fixed selling and administrative expense per quarter of $118,000. The new company fixed overhead is now at $496,000 from the past $538,000 ($42,000) change from past to
b. The inventory write down recorded, as an expense by the company is $4.4 million. It is measured at lower of cost and net realizable value. Cost is measured by weighted average using standard cost method or
Short-Term: To build and maintain sales in the current catering market it serves while controlling its sales and marketing overheads
The cost factor is one of the major concerns for Benihana’s growth. Each new unit costs $300,000. In order to reduce the startup cost, Benihana must find revisit its operating model and re-evaluate what is the most important to the customers. Looking back at exhibit 4, majority of respondents valued quality and taste of the food, service and preparation of food. These are the qualities that truly separate Benihana from other restaurants. Changing Benihana’s staffing model, including training, and the use of materials and labor from Japan, will most certainly minimize new unit cost.
In cost accounting, the lack of understanding of the accounting and finance process by the business manager is an incentive for the unethical employee to manipulate the system. Ethics help management in: · Providing factual and true information to its users, · Determining the nominal price of its products, · Maintaining appropriate professional relationships, and · Maintaining efficacy In today?s world of corporate scandals, an appreciation of ethical standards and a commitment to the proper reporting and disclosure of financial information needs to be constantly reinforced within the area of accounting. Absorption and Variable Costing: Absorption Costing: All costs (fixed and variable) of production are product costs. Which means under absorption costing, both variable and fixed manufacturing costs are included as a part of the cost of the product manufactured.
In determining the fixed costs per unit for the period for absorption costing (not needed for variable costing since the entire fixed cost is expensed as a cost of the month, not a cost of units), you spread the fixed costs across all the units made. Since production was increased substantially, the fixed cost per unit was reduced:
rising (Raab et al., 2009; Annaraud et al., 2008). Pavesic (1985) has initiated research in pricing and cost accounting for restaurants, introducing the concept of profit factor
The paper presents an analysis of the different factors influencing the restaurant industry and how these factors increase or decrease the demand for such services. The hypothesis that will be examined is that the performance of restaurants is mostly based on the type of food chosen by customers when they decide to go out for dinner, lunch, breakfast, or simply for a snack. What type of food refers mainly the nationality or concept of the food, (traditional American, Italian, Indian, Latin, or from any other type of culture). This factor is important because when customers go out to for dinner; they decide what to eat before deciding where to eat. That is why this factor is considerably important according to the hypothesis.