Case Study 2: Loss from Production Waste

Read Case Study 2: Loss from Production Waste (pp. 207-209) at the end of Chapter 10. In a two- to three-page paper (not including the title and reference pages), respond to the items addressed below. Make sure your responses are complete and thorough. In addition to your responses, you will be graded on the accuracy of your calculations.

• Identify and discuss potential problems in receiving.

• In the case study, the restaurant has a walk-in cooler, and the temperature is very inconsistent, resulting in short product shelf life. Explain how you would address the problem with the walk-in cooler.

• Calculate the percentage for second quarter product yield. Discuss your potential product yield issues.

• Assuming the yield percentage is correct, determine what the cost of sales should be and describe how you completed your calculations.

• Explain what the controller meant when he said the problem extended to the dining room.

You must include citations and references from the textbook and a minimum of two scholarly sources and format your paper according to APA style as outlined in the Ashford Writing Center.

"These statements can't be right" said Patrick Matthew, president of Michael's Bistro. "Our sales in the second quarter were up by 25 percent over the first quarter, yet these income statements show a precipitous loss in net income for the second quarter. Those accounting people have fouled something up." Patrick was referring to the following statements:MICHAEL'S BISTRO Income Statements For the First Two Quarters1st QuarterPercent2nd QuarterPercentVarianceFood Sales1,000,000 83.33 1,250,000 83.33 Beverage Sales200,000 16.67 250,000 16.67 Total Food and Beverage Sales1,200,000 100.00 1,500,000 100.00 25 Food Cost320,000 32.00 500,000 40.00 Beverage Cost76,000 38.00 95,000 38.00 Total Cost of Sales396,000 33.00 595,000 39.67 7 Salaries and Wages330,000 27.50 405,000 27.00 Employee Benefits35,000 10.61 42,971 10.61 Tax and Benefits31,000 9.39 38,030 9.39 Total Payroll396,000 33.00 486,000 32.40 -1 China, Glass, Silverware10,000 0.83 10,000 0.83 Credit Card Fee12,000 1.00 15,000 1.00 Decorations Expense4,000 0.33 4,000 0.33 Equipment Repairs-General8,000 0.67 8,000 0.67 General/Office Supplies2,000 0.17 2,000 0.17 Janitorial/Cleaning Supplies5,000 0.42 5,000 0.42 Laundry and Dry Cleaning2,500 0.21 4,000 0.21 Linens-Replacement1,500 0.13 1,500 0.13 Operating Supplies25,000 2.08 30,000 2.08 1st QuarterPercent2nd QuarterPercentVariancePostage5,000 0.42 5,000 0.42 Printing Supplies/Forms5,000 0.42 5,000 0.42 Promotion10,000 0.83 10,000 0.83 Smallwares/Utensils10,000 0.83 12,000 0.83 Telephone3,000 0.25 3,000 0.25 Trash Removal5,000 0.42 5,000 0.42 Uniforms-Replacement3,000 0.25 3,000 0.25 Utilities15,000 1.25 20,000 1.25 Controllable Profit126,000 10.50 142,500 9.50 -1 Rent36,000 3.00 36,000 3.00 Interest Expense144,000 12.00 144,000 12.00 Depreciation-Equipment60,000 5.00 60,000 5.00 Property & Liability Insurance60,000 5.00 60,000 5.00 Total Noncontrollables300,000 25.00 300,000 20.00 -5 Profit and Loss Before Tax-18,000 -1.50 -23,500 -1.57 After studying the statement briefly, Patrick called the controller to see if the mistake in the second quarter could be located before the figures found their way to the press. The controller stated, "I'm sorry to say that those figures are correct, Patrick. I agree that sales went up during the second quarter, but the problem stems from the loading dock, the storeroom, the kitchen, and dining room"Patrick was confused by the controller's explanation. He replied, "This doesn't make any sense. I ask you to explain why we are losing money, though sales went up, and you talk about the production area. You always tell me that food cost is high because the customer orders high-cost items from the menu. If sales go up, then profit should go up. Shouldn't that be happening? Do you have a better explanation?"Your answers will be guided by the following information:1st QuarterPercent2nd QuarterPercentBeginning Inventory100,000 80,000 Purchases300,000 490,000 Ending Inventory80,000 70,000 Product Yield5.12 86? Average Check$ 16.00 $ 16.00 Cover Count62,500 78,125 The restaurant consistently uses last-price method for inventory valuation. The restaurant scale is not calibrated. Your task:

1. Identify and discuss potential problems in receiving.

2. In our case study, the restaurant has a walk-in cooler, and the temperature is very inconsistent, resulting in short product shelf life. Given that, how would you address this problem?

3. What is the percentage for second quarter product yield?

4. Identify and discuss your potential product yield issues.

5. Assuming the yield percentage is correct, what should the cost of sales be?

6. What did the controller mean when he said the problem extended to the dining room?

(Ojugo 207-209): Ojugo, Clement. Practical Food and Beverage Cost Control, 2nd Edition. Cengage Learning, 20090331. VitalBook file.