Question

3. Monthly variable lease payment of b per 3. W 4. 5. W V alternate the three proposals? 510 , which lease payment alte Required: 1. What is the indifference point among the three prop 2. If expected average annual net sales should be recommended to Sarena Wilkes? 3. If expected average annual net sales are should be recommended to Sarena Wilkes? average annual net at alternative Sher elect 0 00, which lease payment alte ed average annual net sale info Mo Jan 1.000 Other Problem 4 ared by Dwayne Kris, CPA The following monthly income statement has been prepare llo's private consultant, you Troy Caballo, the owner of the Caballo Inn As Mr. Caballos asked to explain several cost relationships Caballo Inn Income Statement For the month ended Lanuary 31, 20X1 Other Income Net Cost of Payroll and Revenues Expenses (Loss) Sales Related Expense Rooms $ $ 1,450 $ 105.430 83,980 $ 0- $ 20,000 Food 52.400 17,536 18,864 15.000 Beverage 26,720 12,400 (2,360) 6,680 10,000 4,000 4,000 $ 188 550 $ 25,544 $ 45,000 $ 14,850 103,156 Undistributed Operating Expenses Administrative and General 20,890 Sales and Marketing 3,400 Property Operation and Maintenance 5,080 15,400 Gross Operating Profit Non-Operating Expenses: 58,386 Rent Property Taxes 5,400 Insurance 1,220 EBITDA 2,000 Depreciation 49,766 Interest Expense Encome Before Income Taxes 5,500 3,330 ncome Taxes 40,936 et Income 15,136 $ 25,800 Utility Costs

Answer 1

1. Direct expenses are those expenses which are directly associated with the operation of the organisation. Here in this case owner is running Inn working in hospitality sector. Major expenses are Room service related expenses. i.e Cleaning , Service guys etc. Accordingly direct expenses is Payroll expenses of Room which is $ 20,000.

2. Total Overhead expenses will be total of payroll and other expenses, cost of sales and other operating expenses. $ 45000+ $ 14850 + $25,544 + 58386= $ 143780

3. Cost which can be controlled by GM / person in charge are: Operating and Non operating expenses both can be controlled by GM / person in charge provided those cost don't associated with any factor which cannot be controlled by them.

- other expenses: Put proper control to avoid the unwanted cost to incurr.

- Payroll expenses: Retrenchment can be done provided same will not hamper the service and operation of the organisation

- Rent : With Negotiation with Landlord same can be decreased , or stabilized for particular period of time say one or two year.

- Insurance: Check the requirement is mandatory by any governing law in the land of laws, if yeas then that cost cannot be controlled by the organisation.

- other cost like Admin, Utility, Sales and operation can be controlled with process refinning and putting proper check and accountability at each level.

4. Fixed Cost : Here the cost of which nature can be considered fixed is Rent, Property taxes, Salary and wages, utility cost. because theses expenses need to be incurred even if no operations is being carried out.

5. Cost of Sales is selling and overhead expenses.

for Room services and other Revenue ,  expenses is NIL

for Food it is 26% of Revenue.. i.e As here Revenue is shown in Net revenue it means after selling overheads Total Revenue: 52400$+ 18864$) = 71264 $ i.e 18864 $/ 71264 $ = 26 % approx.

for Beverages it is 20 % of Revenue.. i.e As here Revenue is shown in Net revenue it means after selling overheads Total Revenue: 26720 $ + 6680 $ = 33400 $ i.e. 6680 $/ 33400 $ = 20 %