PERFORMANCE REPORTING

Fernando's is a hole-in-the-wall sandwich shop just off the State University campus. Customers enter off the street into a small counter area to order one of 10 varieties of sandwiches and a soft drink. All orders must be taken out because there is no space for dining in.

The owner of Fernando's is Luis Azaria, son of Fernando Azaria who founded the shop. Luis is attempting to construct a series of budgets. He has accumulated the follow- ing information:

a. The average sandwich (which sells for $4.50) requires 1 roll, 4 ounces of meat, 2 ounces of cheese, 0.05 head of lettuce, 0.25 of a tomato, and a healthy squirt (1 ounce) of secret sauce. (We can't reveal the recipe here, but it includes Serrano pep- per and hoisin sauce.)

b. Each customer typically orders one soft drink (average price $1.50) consisting of a cup and 12 ounces of soda. Refills on the soda are free, but this offer is seldom taken advantage of because the typical customer carries his/her sandwich and soda back to the office or common area.

c. Use of paper supplies (napkins, bag, sandwich wrap, cups) varies somewhat from customer to customer but averages $1,650 per month.

d. Fernando's is open for two 4-hour shifts. The noon shift on Monday through Friday requires two workers earning $10 per hour. The evening shift is only worked on Fri- day, Saturday, and Sunday nights. The two evening shift employees also earn $10 per hour. There are 4.3 weeks in a month.

e. Rent is $575 per month. Other monthly cash expenses average $1,800.

f. Food costs are:

Meat                                                               $7.00/lb

Cheese                                                           $6.00/lb

Rolls                                                               $28.80/gross

Lettuce (a box contains 24 heads)                     $12.00/box

Tomatoes (a box contains about 20 tomatoes)   $4/box

Secret sauce                                                   $6.40/gallon

Soda (syrup and carbonated water)                   $2.56/gallon

In a normal month when school is in session, Fernando's sells 5,000 sandwiches and 5,000 sodas. In October, State U holds its homecoming celebration. Therefore, Luis figured that if he added a noon shift on Saturday and Sunday of homecoming weekend, October sales would be 30 percent higher than normal. To advertise his noon shifts during homecoming weekend, Luis bought cups emblazoned with the State U Homecoming schedule. This added $200 to paper costs for the month. Last year, he added two additional shifts, and his sales goal was realized.

Required:

1. Prepare a flexible budget for a normal school month.

2. Prepare a flexible budget for October.

3. Do you think it was worthwhile for Luis to add the additional shifts for homecom- ing weekend last October?