Chapter 3, Question 1

Nicole's P&L
Last Year % This Year %
SALES:
Food $3,706,381 $3,746,245
Beverage $647,555 1,255,358
Total Sales
COST OF SALES:
Food 1,282,656 1,611,630
Beverage 145,607 162,231
Total Cost of Sales
GROSS PROFIT:
Food 2,423,725 2,134,615
Beverage 501,948 1,093,127
Total Gross Profit
OPERATING EXPENSES:
Salaries and Wages 1,230,910 1,256,779
Employee Benefits 190,394 196,790
Direct Operating Expenses 234,670 232,571
Music and Entertainment 4,427 13,418
Marketing 84,126 111,813
Utility Services 141,688 156,538
Repairs and Maintenance 66,416 62,616
Administrative and General 128,403 125,230
Occupancy 230,400 211,200
Depreciation 79,699 98,397
Total Operating Expenses
Operating Income
Interest 166,560 149,405
Income Before Income Taxes
Income Taxes 147,192 245,194
Net Income
1. Nicole Englezakis manages a South African restaurant in a large southern city. The
owner wants to know how well Nicole did this year at generating sales, controlling
expenses, and providing a prot. Complete Nicoles P&L using vertical analysis.

a. When comparing this year to last year, was Nicoles marketing expense in dollars higher or
lower?

b. Was Nicoles marketing expense % higher or lower this year?
Chapter 3
Q 1
b. Was Nicoles marketing expense % higher or lower this year?

c. Do you think that her marketing expense this year positively or negatively contributed to her
revenues? Why?

d. When comparing this year to last year, was Nicoles salaries and wages expense in dollars
higher or lower?

e. Was Nicoles salaries and wages expense % higher or lower this year?

f. Do you think that her salaries and wages expense this year positively or negatively
contributed to her net income? Why?

g. The owner promised Nicole that he would give her a raise if she increased prot margin by
at least 2%. Should Nicole receive a raise? Why or why not?
Chapter 3
Q 1
Chapter 3, Question 2
Terry's P&L
Total Revenue 5,100,350
Rooms - Revenue 3,000,000
Payroll and Related Expenses 535,600
Other Expenses 229,450
Department Income
Food - Revenue 1,400,000
Cost of Sales 386,100
Payroll and Related Expenses 395,200
Other Expenses 96,200
Department Income
Beverage - Revenue 560,000
Cost of Sales 81,510
Payroll and Related Expenses 96,590
Other Expenses 36,400
Department Income
Telecommunications - Revenue 14,000
Cost of Sales 30,550
Payroll and Related Expenses 9,750
Other Expenses 5,200
Department Income
Other Operated Departments - Revenue 105,000
Cost of Sales 14,300
Payroll and Related Expenses 32,500
Other Expenses 11,700
Department Income
Rentals and Other Income - Revenue 21,350
Cost of Sales 2,860
Payroll and Related Expenses 8,840
Other Expenses 1,950
Department Income
Total Operated Department Income
Undistributed Operating Expenses
Administrative and General 245,050
Information Systems 64,350
Human Resources 105,300
Security 50,050
Chapter 3
Q 2
Franchise Fees 0
Transportation 60,450
Marketing 280,280
Property Operations and Maintenance 216,125
Utility Costs 193,375
Total Undistributed Operating Expenses
Gross Operating Profit
Rent, Property Taxes, and Insurance 317,850
Depreciation and Amortization 227,500
Net Operating Income
Interest 136,500
Income Before Income Taxes
Income Taxes 491,528
Net Income
2. Terry Ray manages a hotel in an urban Midwestern city. He wants to use
vertical analysis in order to evaluate his income statement (P&L). Complete
the spreadsheet to help him evaluate his effectiveness as a manager.

a. The owner gave Terry a goal of 65% total operated department income. Did
Terry perform better or worse than this goal? By how much?

b. The owner also gave Terry a goal of 22% total undistributed operating
expenses. Did Terry perform better or worse than this goal? By how much?

c. Finally, the owner gave Terry a goal of 20% prot margin for the year. Did Terry
perform better or worse than this goal? By how much?

d. If you answered that Terry did not meet his goal in question c, what could he do
to get his P&L in line with the owners goals?
Chapter 3
Q 2
Chapter 3
Q 2
Chapter 3, Question 3
Laurie's Comparative Income Statement
Last Year This Year $ %
SALES:
Food 3,025,618 3,499,239
Beverage 622,649 772,528
Total Sales
COST OF SALES:
Food 997,622 1,151,165
Beverage 132,370 144,849
Total Cost of Sales
GROSS PROFIT:
Food
Beverage
Total Gross Profit
OPERATING EXPENSES:
Salaries and Wages 897,539 1,071,119
Employee Benefits 138,828 167,720
Direct Operating Expenses 171,114 198,215
Music and Entertainment 3,228 11,436
Marketing 61,342 95,295
Utility Services 103,314 133,413
Repairs and Maintenance 48,429 53,366
Administrative and General 93,628 106,731
Occupancy 168,000 180,000
Depreciation 58,114 83,861
Total Operating Expenses
Operating Income
Interest 121,450 127,334
Income Before Income Taxes
Income Taxes 261,315 313,850
Net Income
Difference
3. Laurie Llamos manages a Mexican restaurant in a rural Texas town. She wants to
develop a comparative (horizontal) income statement so that she can compare the
differences in her revenues, expenses, and prot from this year to last year. Complete
the following comparative income statement.

a. Lauries goal was to increase her total sales by 15%. Did she achieve this goal?
Chapter 3
Q 3

a. Lauries goal was to increase her total sales by 15%. Did she achieve this goal?

b. One of Lauries plans to increase trafc into her restaurant and thus increase her sales was
to hire a mariachi band to play at regular intervals during the meal service. This affected her
music and entertainment expense. What was the % difference in music and entertainment, and
do you think this had a positive or negative effect on sales?

c. Laurie also wanted to increase her net income by 10%. Did she achieve this goal?
Chapter 3
Q 3
Chapter 3, Question 4
Haroun's Property Operations and Maintenance Expense Schedule
Type of Expense Expense
% of Property Operations and
Maintenance Expenses
Payroll and Related Expenses
Chief Engineer 8,637
Engineer Assistants 22,163
Benefit Allocation 13,750
Total Payroll

Other Expenses

Computer Equipment 3,108
Equipment Rental 7,700
Electrical & Mechanical Equipment 15,565
Elevators 4,620
Elevator Repairs 1,540
Engineering Supplies 1,925
Floor Covering 5,058
Furniture 21,010
Grounds 6,160
HVAC 15,675
Kitchen Equipment 979
Laundry Equipment 616
Light Bulbs 1,650
Maintenance Contracts 7,238
Operating Supplies 875
Painting & Decorating 1,562
Parking Lot 4,708
Pest Control 2,365
Plants & Interior 1,628
Plumbing & Heating 9,790
Refrigeration & A/C 10,780
Signage Repair 5,881
Snow Removal 10,835
Travel & Entertainment 1,045
Telecommunications 968
Trash Removal 3,080
Uniforms 2,904
Chapter 3
Q 4
Total Other Expenses
Total Property Operations and
Maintenance
4. Haroun Jackson is the chief engineer of a large hotel in New England. Her general
manager has asked her to complete her Property operations and Maintenance Expense
Schedule to determine the detailed costs for her department. Help Haroun complete her
schedule.

a. What was Harouns largest single expense as a percentage of total property operations and
maintenance?

b. What was Harouns smallest single expense as a percentage of total property operations and
maintenance?

c. Haroun purchased new furniture for her hotel lobby, but does not anticipate any furniture
purchases next period. How might this affect her overall total property operations and
maintenance expense next period?
Chapter 3
Q 4