Question

Pierre’s is a small sandwich shop just off the Northern College campus. Customers enter off the street into a small counter area to order one of 10 varieties of sandwiches and a soft drink. All orders must be taken out because there is no space for dining in.

The owner of Pierre’s is Serge Blouin, son of Pierre Blouin, who founded the shop. Serge is attempting to construct a series of budgets. He has accumulated the following information:

1. The average sandwich (which sells for $4.50) requires 1 roll, 100 grams of meat, 50 grams of cheese, 0.05 head of lettuce, 0.25 of a tomato, and a healthy squirt (25 millilitres) of secret sauce. (We can’t reveal the recipe here, but it includes Serrano pepper and hoisin sauce.)

2. Each customer typically orders one soft drink (average price $1.50) consisting of a cup and 0.5 litres of pop. Refills on the pop are free, but this offer is seldom taken advantage of because the typical customer orders the sandwich and pop for take-out.

3. Use of paper supplies (napkins, bag, sandwich wrap, cups) varies somewhat from customer to customer but averages $1,650 per month.

4. Pierre’s is open for two 4-hour shifts. The noon shift on Monday through Friday requires two workers earning $10 per hour. The evening shift is only worked on Friday, Saturday, and Sunday nights. The two evening shift employees also earn $10 per hour. There are 4.3 weeks in a month.

5. Rent is $575 per month. Other monthly cash expenses average $1,800.

6. Food costs are:

   Meat	$14.00/kg
   Cheese	$12.00/kg
   Rolls	$28.80/gross
   Lettuce (a box contains 24 heads)	$12.00/box
   Tomatoes (a box contains 20 tomatoes)	$4/box
   Secret sauce	$2.40/litre
   Pop (syrup and carbonated water)	$0.56/litre

In a normal month when Northern College is in session, Pierre’s sells 5,000 sandwiches and 5,000 cups of pop. In October, Northern College holds its homecoming celebration. Therefore, Serge figured that if he added a noon shift on Saturday and Sunday of homecoming weekend, October sales would be 30 percent higher than normal. To advertise his noon shifts during homecoming weekend, Serge bought cups emblazoned with the Northern College homecoming schedule. This added $200 to paper costs for the month. Last year, he added two additional shifts, and his sales goal was realized.

Required:

1. Prepare a flexible budget for a normal school month.**

2. Prepare a flexible budget for October.

3. Was it worthwhile for Serge to add the additional shifts for homecoming weekend last October?

**Check figure: Total cost = $19,877

Answer 1

Flexible Budget For a normal school month
Activity Level	5,000 customers
Revenue ( 5,000 * $ ( 4.50 + 1.50)	$ 30,000
Expenses
Direct materials ( 5,000 * $ 2.615 )	13,075
Paper Supplies	1,650
Labor	2,080
Rent Expense	575
Other Cash Expenses	1,800
Total Expenses	19,180
Net Operating Income	$ 10.180

Cost of materials required per average customer :

Meat	$ 14 / 10	$ 1.40
Cheese	$ 12 / 20	0.60
Roll	$ 28.80 / 144	0.20
Lettuce	$ 12 / 24 * 0.05	0.025
Tomatoes	$ 4 / 20 * 0.25	0.05
Secret Sauce	$ 2.40 / 1,000 ml * 25 ml	0.06
Pop	$ 0.56 / 2	0.28
Total cost		$ 2.615

Cost of labor per normal week ( noon shift) = 5 days x 4 hours per shift x 2 workers x $ 10 per hour = $ 400 per week.