Hello, I was wondering if anyone could help me with my work. I already did with the calculation except for the less wage costs and less fixed costs. My lecturer gave us this work without even explaining to us. Also, if anyone could give help me with the spreadsheet. I did them, but it looks messy.
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A client is planning to open a restaurant and is trying to choose a location. There are 3 possibilities – A, B and C. It is expected to start trading at the beginning of 2017, and needs to plan for 3 years. The business will start with a loan of $50,000 and cash on hand of $20,000, but these figures may change.
The 3 locations have slightly different market potential at present and different growth rates.
Market Potential – it is expected that the restaurant will pick up 12% of the population. The population predictions are as follows:
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Labour costs - the locations have different labour characteristics so it is expected that rates will rise by different percentages.
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Other factors that influence the financial status of the restaurant do not vary between locations:
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For every 4,500 meals the restaurant needs 2 staff. To maintain quality of service there will not be part-time staff nor overtime.
So, for example, if the restaurant sells 14,333 meals it will need 8 staff (6 staff have a capacity of 13,500 meals, 8 have a capacity of 18,000 meals)
For each year you will need to calculate the operating surplus:
Revenue from meals (= number of meals x selling price per meal)
less ingredient costs (= number of meals x ingredient cost per meal)
less wage costs (= number of staff x wage rate)
less fixed costs
At the start of 2018, interest is payable on the $50,000 loan. According to the financial situation the restaurant may then repay some of the loan or borrow more. The next year’s interest is based on the revised loan amount, and so on.
If the restaurant has made a profit (operating surplus – interest payment > 0) then tax is payable (=profit x tax rate). If it makes a loss, then there is no tax liability.
Until the loan is fully repaid, the cash on hand at the beginning of the year will be kept the same as the initial amount ($20,000). This is achieved by topping up the cash by adding to the loan, or bringing cash down to the desired figure by repaying part of the loan. If the loan is fully repaid then cash on hand may increase.
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A client is planning to open a restaurant and is trying to choose a location. There are 3 possibilities – A, B and C. It is expected to start trading at the beginning of 2017, and needs to plan for 3 years. The business will start with a loan of $50,000 and cash on hand of $20,000, but these figures may change.
The 3 locations have slightly different market potential at present and different growth rates.
Market Potential – it is expected that the restaurant will pick up 12% of the population. The population predictions are as follows:
| Location | 2017 | 2018 | 2019 |
| A | 125,500 | 128,750 | 131,750 |
| B | 110,000 | 116,500 | 119,750 |
| C | 110,000 | 112, 250 | 118,850 |
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Labour costs - the locations have different labour characteristics so it is expected that rates will rise by different percentages.
| Location | Current | 2017 | 2018 | 2019 |
| A | $16,000 | 2% | 3% | 4% |
| B | $15,500 | 1% | 2% | 2% |
| C | $12,000 | 3% | 1% | 1% |
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Other factors that influence the financial status of the restaurant do not vary between locations:
| | 2017 | 2018 | 2019 |
| Average selling price per meal | $12.00 | $12.50 | $13.00 |
| Average ingredient cost per meal | $5.00 | $5.50 | $6.00 |
| Fixed Costs | $12,000 | $13,000 | $14,000 |
| Tax Rate | 3% | 4% | 5% |
| Interest Rate | 1% | 1% | 1% |
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For every 4,500 meals the restaurant needs 2 staff. To maintain quality of service there will not be part-time staff nor overtime.
So, for example, if the restaurant sells 14,333 meals it will need 8 staff (6 staff have a capacity of 13,500 meals, 8 have a capacity of 18,000 meals)
For each year you will need to calculate the operating surplus:
Revenue from meals (= number of meals x selling price per meal)
less ingredient costs (= number of meals x ingredient cost per meal)
less wage costs (= number of staff x wage rate)
less fixed costs
At the start of 2018, interest is payable on the $50,000 loan. According to the financial situation the restaurant may then repay some of the loan or borrow more. The next year’s interest is based on the revised loan amount, and so on.
If the restaurant has made a profit (operating surplus – interest payment > 0) then tax is payable (=profit x tax rate). If it makes a loss, then there is no tax liability.
Until the loan is fully repaid, the cash on hand at the beginning of the year will be kept the same as the initial amount ($20,000). This is achieved by topping up the cash by adding to the loan, or bringing cash down to the desired figure by repaying part of the loan. If the loan is fully repaid then cash on hand may increase.
