Foundations of cost control by daniel traster chapter14

chapter 14

Income Statements and Budgets

Class Name
Instructor Name
Date, Semester

Foundations of Cost Control
Daniel Traster


Income Statement Disclaimer

•

The National Restaurant Association’s Uniform System of Accounts for
Restaurants describes an industry standard format for income statements, so
businesses can compare their data to other businesses

•

The income statement format described here is NOT the NRA approach, but a
similar, simplified version that is easier to learn and that makes a transition to
the NRA format easier as well.

•

The NRA version is described in the appendix.

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Three Financial Reports

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Income Statement Format

•

Can be written to cover any time period

•

Common Size Income Statement lists dollars and percents for each line item
and category

•

Percents express each line item as a percent of sales, except for the
subheadings under “Cost of Sales”

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Figure 14a: Portion of Common Size
Income Statement

Total Sales

$375,400

100.0%

Salaries and Wages

$110,380

29.4%

Employee Benefits

$24,838

6.6%

$135,218

36.0%

Labor

Total Labor Cost

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Income Statement Format (cont.)

•

Always start with a “Sales” category, which is subdivided into “food” and
“beverage” sales

•

Percents for food and beverage sales show the sales mix between food and
beverage

•

Total sales always equals 100%

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Income Statement Format (cont.)

Subcategories under “cost of sales” use different percent bases (not based on
total sales)

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Income Statement Format (cont.)

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Income Statement Format (cont.)

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Income Statement Format (cont.)

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Figure 14b: Portion of Common Size Income Statement

Sales
Food

$727,194

74.0%

Beverage

$255,561

26.0%

Total Sales

$982,755

100.0%

Food Cost

$255,180

31.0% (% of food sales)

Beverage Cost

$58,804

23.0% (% of beverage sales)

Total Cost of Goods Sold

$283,984

28.9%

Gross Profit

$698,771

71.1%

Cost of Sales

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Income Statement Format (cont.)

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Figure 14c: Portion of Common Size
Income Statement

Labor
Salaries and Wages

$275,442

28.0%

Employee Benefits

$52,155

5.3%

Total Labor Cost

$327,597

33.3%

Prime Cost

$611,581

62.2%

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Income Statement Format (cont.)

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Income Statement Format (cont.)

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Income Statement Format (cont.)

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Income Statement Format (cont.)

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Figure 14d: Portion of Common Size
Income Statement

Controllable Expenses

Direct Operating Expenses

$48,506

4.9%

Music and Entertainment

$14,300

1.5%

Marketing

$19,325

2.0%

Utilities

$38,992

4.0%

General and Administrative

$24,774

2.5%

Repairs and Maintenance

$14,500

1.5%

Total Controllable Expenses

$160,397

16.3%

Income before Fixed Costs

$210,777

21.4%

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Income Statement Format (cont.)

Fixed Costs includes 3 major categories:

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Income Statement Format (cont.)

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Figure 14e: Portion of Common Size
Income Statement

Fixed Costs
Occupancy Costs

$98,800

10.0%

Interest

$28,746

2.9%

Depreciation

$31,678

3.2%

Total Fixed Costs

$159,224

16.2%

Profit before Taxes

$51,553

5.2%

Income Taxes

$12,213

1.2%

Net Income

$39,340

4.0%

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Income Statement Graphic Formula

•

% column is calculated using the
graphic below

•
Cost

For food cost and beverage cost,
“sales” is the corresponding food
sales or beverage sales; all other
items use “total sales” for sales.

Sales x %

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Example 14a

On income statement, “marketing” is listed as $7,000. Total sales are
$380,000. What percent should be written next to “marketing”?

% = Cost ÷ Sales
= $7,000 ÷ $380,000
= 1.8%

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Example 14b

Income statement lists food sales as $114,600. Manager wants to run a
30.4% food cost. What should food cost be in dollars?

Food Cost = Food Sales X %
= $114,600 X 0.304
= $34,838

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Comparing Income Statements and Budgets

Income Statements

vs.

Budgets

•

Income statements and budgets look similar

•

Same line item names and common size format

•

Income statements use real data from history

•

Budget is forward-looking plan

•

Both are often compared side-by-side

•

Two approaches to compare them: common size analysis and comparative
analysis
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