# Financial Report: Review

## Analysis of cost

Some of the opening costs of the restaurant will be capitalized. These start-up costs relate to the one activity of opening the restaurant and not daily operation of the business. The costs that will be capitalized are summarized in the table presented below.

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 Item Amount (ĂE) 1 Construction of customized built out 17,000 2 Restaurant tables and furniture 7,000 3 Utensils, dishes, kitchen and bar equipment 15,000 4 Restaurant opening event 5,000 5 Signage 6,000 6 Menus 2,000 7 Training and development 12,800 8 Insurance 3,000 9 Permits and licenses 4,000 10 Public relations services 3,000 11 Ordering and payment 8,000 12 Recruitment processing cost 3,000 13 Accounting costs 64,200 Total start-up cost 150,000

Before solving the problem, it is important to calculate the accounting costs. This will be based on the assumption that the total money amounting to ĂE150,000 was spent in the opening of the restaurant. Thus, the accounting costs will be the difference between the total income and the total opening cost summarized in the table above.

Accounting costs = 150,000 – 85,800 = ĂE64,200

## Contribution statement

The table presented below shows the contribution statement of the restaurant.

 ĂE ĂE Total income 100,000 Variable costs Initial supply of food and beverage 3,000 Total labor cost (monthly) 62,000 -65,000 Contribution margin 35,000 Fixed costs Other costs 15,000 Net income 20,000

## Estimation of the break-even point

At the break-even point, the total sales revenue equals to the total cost. The total cost comprises of variable cost and fixed cost. The calculations of the break-even sales are illustrated below.

Break even = Fixed cost / contribution margin ratio = 15,000 / (35,000 / 100,000) = 15,000 / 0.35 = ĂE42,857.14

From the calculations above, the restaurant need to make a sales amounting to ĂE42,857.14 to enable it to adequately cover the total cost of operation.

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## Margin of safety

The margin of safety is calculated using the formula illustrated below.

Margin of safety in sales dollars = Budgeted sales unit – break-even sales = 100,000 – 42,857.14 = ĂE 57,142.86

The above calculations show that the margin of safety is ĂE 57,142.86. This implies that the sales of the company can fall by ĂE 57,142.86 before the restaurant reaches its break-even sales.

The budget is prepared based on the assumption that there will be no change in the current values within the first three months of operation. Besides, it will be assumed that the depreciation will be recorded in the books of account at year end. The table presented below shows the overhead budget for the restaurant for a period of three months.

 Month 1 Month 2 Month 3 Variable overheads Initial supply of food and beverage 3,000 3,000 3,000 Total labor cost (monthly) 62,000 62,000 62,000 Total variable overheads 65,000 65,000 65,000 Fixed overheads Other costs 15,000 15,000 15,000 Total fixed overheads 15,000 15,000 15,000 Total overheads 77,000 77,000 77,000

## Income statement

The table presented below shows the income statement of the restaurant for the first three months.

 Month 1 Month 2 Month 3 Total income 100,000 100,000 100,000 Cost of sales 3,000 3,000 3,000 Gross profit margin 97,000 97,000 97,000 Expenses Total labor cost (monthly) 62,000 62,000 62,000 Other costs 15,000 15,000 15,000 Total expenses 77,000 77,000 77,000 Net income 20,000 20,000 20,000

## Balance sheet

The table presented below shows the balance sheet of the restaurant for the first three months.

 Month 1 Month 2 Month 3 Assets Start-up cost 150,000 150,000 150,000 Stockholder’s equity and liabilities Capital 150,000 150,000 150,000

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StudyCorgi. 2022. "Financial Report: Review." June 19, 2022. https://studycorgi.com/financial-report-review/.

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StudyCorgi. (2022) 'Financial Report: Review'. 19 June.

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