Question

Ralph’s Restaurant has the following information for year 2, when several new employees were added to the waitstaff:

Sales revenue	$	120,000
Cost of food serveda		43,200
Employee wages and salariesb		16,800
Manager salariesc		23,000
Building costs (rent, utilities, etc.)d		16,000

^a 5 percent of this cost was for food that was not used by the expiration date and 10 percent was for food that was incorrectly prepared because of errors in orders taken.

^b 15 percent of this cost was for time spent by cooks to reprepare orders that were incorrectly prepared because of errors in orders taken.

^c 20 percent of this cost was time taken to address customer complaints about incorrect orders.

^d 100 percent of the building was used.

Required:

a. Using the traditional income statement format, prepare a value income statement. (Loss amounts should be indicated with a minus sign.)

Answer 1

Solution

Ralph’s Restaurant
Value Income Statement
For the year 2 ending December 31
	Non Value added activities	Value added activities	Total
Sales revenue		$120,000	$120,000
Cost of merchandise;
Cost of food served	$6,480 ($43200*0.15)	$36,720 ($43200*0.85)	$43,200
Gross Margin	($6,480)	$83,280 (120,000-36720)	($31,200) =(12000-43200)
Operating Expense
Employee Salaries and Wages	$2,520 (16800*0.15)	$14,280 (16800*0.85)	$16,800
Manager's Salaries	$4,400 (22000*0.2)	$17,600 (22000*0.8)	$22,000
Building Cost		$16,000	$16,000
Operating Income	($13,400)	$35,400	$22,000