Pappadeaux
The current accounting system at Pappadeaux is fundamentally flawed, and the result is distorted performance figures for managers. Appendix A contains the basic income statement that Harry is using to evaluate Gregory, with variance noted. However, Gregory should not be evaluated on matters that do not relate to his performance. A significant portion of the poor performance against the budget relates to elements of the budget that were out of Gregory's control. For example, all food is purchased at head office; overhead is allocated by head office; utility rates cannot be controlled, only usage; Harry granted supervisors a raise; rent is established by corporate head office; taxes are out of Gregory's control.
With respect to food costs, a variance budget would show that the food expense should be 1/3 of sales, based on the budget. This implies that the food budget should have been $266,666 but was $240,000. This is an improvement of $26,666. The supervisors' budget would have been on target if not for...
33% of total sales (projected at $900,000). Actual insurance and taxes came to 4% for the year. This is mostly due to a local business tax increase. Recommendations Insurance and taxes expense should be calculated at 4% of total budgeted sales. With a recommended sales budget of $900,000, this expense should be $32,000 ($900,000 X.04). Rent Analysis Rent is established by corporate headquarters, and it is a fixed expense. An unexpected $10,000 increase in rent resulted
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