Charley’s Family Steak House Case Studies
Introduction
In this case we would discuss the situation with Alex Pearson, who is a manager for Unit number two of Charley’s Family Steak House. Pearson is looking forward to meeting with Charley turner who is the owner of the company. In the meeting, Pearson would have to present details regarding the performance of his unit for the year2008. Pearson has been appointed as the manager of this unit in the current year. In the meeting Turner will be announcing to give bonus to Pearson equaling 25% of his salary, this reward would be completely based upon the performance of the Unit under Pearson. In order to get the bonus, Pearson requires to present good details of his performance.
Problem Statement
After being promoted as manager to Unit no. 2 in year of 2008, Pearson had a meeting with Turner, in the meeting both made a budget of the unit for year 2008. The budget included all the details about expected expenses and sales of the unit in the year 2008. According to Pearson, the Gross sales figure that they used in the plan were quite aggressive.
Now that the year has ended, and Pearson is expected to get a bonus, he knows that the decision regarding his bonus is primarily based on the budget that he made along with Turner. The problem here is that the Profit and Net sales that they both were expecting and based on which they made the budget, the actual figures turned out to be very low than that. Now in order to get the bonus, Pearson have to be very reasonable with Turner. Because in the meeting Turner would definitely ask him about the performance of his unit, in terms of their profit goals and the expenses.
Case Analysis
Question No. 1
A flexible budget is a type of budget in which we use different size of revenues or sales. Then the impact of different volume of revenues over different accounts of income statement is determined. In this case when the original budget was prepared for the Unit no. 2, the gross sales volume was considered to be 1,861,860. However the actual gross sales for the unit turned out to be more than that of the expected, i.e. 1,936,025. This change in volume would have a definite impact over the different expenses of the unit, because of which the actual expenses would differ to the planned. However in this case, Pearson has made the flexible budget for his unit by using the actual volume of the gross sales. By doing so he would be able to incorporate its impact over different expense and costs accounts and ultimately over the profit. By comparing his flexible budget to the actual operating income statement, he would be able to give reasonable explanations regarding the variable of expenses and the profit to Turner.
By using the actual figure of gross sales, we have prepared a revised flexible budget for the unit. Based on that figure, the expense figures are also revised in the budget plan. From the revised budget it could be seen that the expenses that were expected in the original budget have changed. Most of the expenses like Food, Other operating expenses, Advertising expenses etc. have increased in the calculated flexible budget as compared to the original budget. These increased costs and expenses have decreased the profit of the company if it is compared to the actual profit.
Question No. 2
The factors that have affected the actual net sales of the company as compared to the planned net sales are as follows
Number of Customers
The actual Number of Customers turned out to be more than the expected. The Number of Customers were expected to be 3850, however the actual Number of Customers turned out to be 4025. The increased number of customers are might be because of the increased marketing efforts of the company as it could be seen that the marketing expense of the company is higher as compared to that in the planned budget.
Customer lunch / dinner mix
Another factor that have affected the net sales is the Customer lunch / dinner mix. The Customer lunch / dinner mix was planned to be 50/50. However in actual the Customer lunch / dinner mix happened to be 40/60. This decreased the net sales because the items sold for dinner tends to generate less sales than the items sold for lunch.
Average gross check at lunch and dinner
The Average gross check at lunch and dinner is another factor which affects the net sales of the company. Here in this case the average gross check for dinner, which is reasonable because the number of customers for dinner were also more as compared to planned. However the number of customers for the lunch were less than that of expected, but its gross check remained same, it is the reason that the net sales of the unit were less than the planned net sales.
Discount coupon usage
The major factor in the difference of planned and actual net sales is the discount coupon usage. The discount coupon usage were estimated to be 104,087. But in actual it was calculated to be 209300, which is a lot higher than the expected. This change have majorly affected the actual net sales of the unit and have tend to decrease it by 105213 as compared to the planned net sales.
Question No. 3
Based on the quantitative analysis it could be seen that the expenses of the unit are not managed well by Alex. Although the number of customers have impacted the volume of expenses but if thoroughly analyzed, the higher actual operating expenses are mainly because of the higher actual advertising expense of the unit. A lot of more expenses have been spent by the unit as compare to its budget. Advertising expense have nothing to do with the variation in the number of customers. Apart from advertising expense, the lower actual than planned profits are mainly impacted by the lower net sales. Which means that Pearson was also inefficient in bringing higher net sales to his unit. Hence, based on his performance, he should not be given the bonus.
Conclusion
The unit have not performed well in terms of its sales goals and management of its overall expenses. The lower profit of the company have mainly happened because of the more than planned budget for the advertising expense and over usage of discount coupons from the customers....
Charley’s Family Steak House Case Studies
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