om used to run his own business, a small café in the East of Singapore. Last year, due to water damage from a flash flo
Posted: Wed Apr 27, 2022 10:35 am
om used to run his own business, a small café in the East of
Singapore. Last year, due to water damage from a flash flood, not
only did he lose a substantial part of his inventory; but his café
also sustained damages. In order to carry on the business, he sold
the café to his friend, Bill, who invested money to replace/repair
damaged shop fixtures and machines, and to purchase new inventory.
The small café offers coffee and tea, and light food snacks bought
from outside suppliers. The snacks are heated up in the café and
served. There is only one other worker, a waiter. Tom is now the
manager. Between the two of them, they make drinks, serve
customers, and clean up.
When he was running his own business, Tom did not receive a
salary. Now he is paid $2,500 per month. The waiter is paid $1,000
a month. They both work from 9 am to 8 pm, six days a week. Tom is
also in charge of purchasing for the café. In the past, he bought
inventory in bulk to get a lower price. However, as the inventory
is perishable, it often spoils and at the end of each quarter about
30% is thrown away. This spoilage cost has been factored into the
cost of ingredients per set. The café sells drink & snacks in
a set. The average ingredient costs for each set is $2.20 and it is
sold at $4 per set. Rent and utilities average $2,500 per month.
The business uses the number of sets as an allocation base for its
overhead costs.
The budgeted sales for the next five quarters for the café are
stated below
14,400
(a) If Tom is evaluated based on budgeted profit for the café,
explain how Bill should rate Tom’s performance for the first two
quarters of 2018 if the actual sales for the café are as follows
(assume there are differences in the budgeted and actual costs per
set of meal and selling price per set of meal). (Hint: Flexible
Budget)
(b) The café pays for purchases of ingredients one quarter
later. All other expenses are paid for in cash in the same quarter.
Assuming the café has a cash balance of $28,400 and no outstanding
ingredients payments at the beginning of 2018 from purchases in
Quarter 4 of 2017, construct the cash budget for Quarter 2 and
Quarter 3 of 2018.
Singapore. Last year, due to water damage from a flash flood, not
only did he lose a substantial part of his inventory; but his café
also sustained damages. In order to carry on the business, he sold
the café to his friend, Bill, who invested money to replace/repair
damaged shop fixtures and machines, and to purchase new inventory.
The small café offers coffee and tea, and light food snacks bought
from outside suppliers. The snacks are heated up in the café and
served. There is only one other worker, a waiter. Tom is now the
manager. Between the two of them, they make drinks, serve
customers, and clean up.
When he was running his own business, Tom did not receive a
salary. Now he is paid $2,500 per month. The waiter is paid $1,000
a month. They both work from 9 am to 8 pm, six days a week. Tom is
also in charge of purchasing for the café. In the past, he bought
inventory in bulk to get a lower price. However, as the inventory
is perishable, it often spoils and at the end of each quarter about
30% is thrown away. This spoilage cost has been factored into the
cost of ingredients per set. The café sells drink & snacks in
a set. The average ingredient costs for each set is $2.20 and it is
sold at $4 per set. Rent and utilities average $2,500 per month.
The business uses the number of sets as an allocation base for its
overhead costs.
The budgeted sales for the next five quarters for the café are
stated below
14,400
(a) If Tom is evaluated based on budgeted profit for the café,
explain how Bill should rate Tom’s performance for the first two
quarters of 2018 if the actual sales for the café are as follows
(assume there are differences in the budgeted and actual costs per
set of meal and selling price per set of meal). (Hint: Flexible
Budget)
(b) The café pays for purchases of ingredients one quarter
later. All other expenses are paid for in cash in the same quarter.
Assuming the café has a cash balance of $28,400 and no outstanding
ingredients payments at the beginning of 2018 from purchases in
Quarter 4 of 2017, construct the cash budget for Quarter 2 and
Quarter 3 of 2018.