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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Objectives of the master budget

Domino’s Pizza L.L.C. operates pizza delivery and carry-out restaurants. The annual report describes its business as follows:

We offer a focused menu of high-quality, value-priced pizza with three types of crust (Hand- Tossed. Thin Crust, and Deep Dish), along with buffalo wings, bread sticks, cheesy bread. CinnaStix®, and Coca-Cola® products. Our band-tossed pizza is made from fresh dough produced in our regional distribution centers. We prepare every pizza using real cheese, pizza sauce made from fresh tomatoes, and a choice of high-quality meat and vegetable toppings in generous portions. Our focused menu and use of premium ingredients enable us to consistently and efficiently produce the highest-quality pizza.

Over the 41 years since our founding, we have developed a simple. cost-efficient model. We offer a limited menu, our stores are designed for delivery and carry-out, and we do not generally offer dine-in service. As a result, our stores require relatively small, lower-rent locations and limited capital expenditures.

  How would a master budget support planning, directing, and control for Domino's?

To determine

Budgeting is a process to prepare the financial statement by the manager to estimate the organization’s future actions. It is also helpful to satisfy the everyday activities.

To explain: the ways that a master budget would support planning, directing, and control for Company D.

Explanation

Company D could be able to plan the operations for pizzas accurately if it uses a master budget of operations in consistence with the sales budget. This is because, there would not be any finished goods inventory for cooked pizzas which can be kept to be sold for the next period.

A sales budget would help in planning the manufacturing and selling overhead costs of pizzas such as ingredients for making pizza, packaging materials, beverages, and other related materials, fuel cost for delivery, and direct labour cost of cooks, counter staff, dough making labour, and delivery drivers.

The overhead cost is more based on the number of restaurants than the number of pizzas sold. This is because, the number of restaurants adds on the cost of management salaries, rent, utilities, insurance, and other related overhead costs. Though, the delivery drivers own the delivery vehicles, the depreciation and maintenance cost are not included in Company D’s overhead budget...

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