3 Pleasant Town operates fast food restaurants in the food c

3. Pleasant Town operates fast food restaurants in the food courts of shopping malls. Its main product is a serving of chili that requires meat (direct material), beans and other shelf-stable ingredients (direct materials) and food preparation (direct labor). Overhead is allocated based on occupancy hours (number of hours open for business). The April budget for Pleasant Town\'s Riverside Mall restaurant was: .Sales 21,000 servings at $3.50 each Standard meat cost of $0.50 per serving (1/4 pound @ $2.00 per pound) Standard shelf-stable food cost of $0.225 per serving (0.3 pound @$0.75 per pound) Standard direct labor of $0.34 per serving (2.4 minutes @$8.50 per hour) Variable overhead expenses of $2,886, assuming 296 occupancy hours . Fixed overhead expenses of $7,000 Actual April performance of the Riverside Mall restaurant was: . Sales 18,000 servings at $3.30 each 5,400 lbs of meat, at a cost of $10,260 . 7,020 lbs of shelf-stable ingredients, at a cost of $4,914 Direct labor cost of $3,915 for 450 hours Variable overhead expenses of $2,500, where they were open 300 hours in the month . Fixed overhead expenses of $6,900 In early May, the restaurant\'s kitchen manager received the following financial performance report: PLEASANT TOWN RIVERSIDE MALL Kitchen Performance Report For the Month of A Actual 4,914.00 $4,725.00 $189.00 U 2,500.00 Bud Variance Meat Shelf stable ingredients Direct labor Variable OH Fixed OH Total $10,260.00 $10,500.00 $240.00 F $3,915.00 7,140.00 $3,225.00 F $6,900.00 $7,000.00 $100.00 $2,886.00 386.00 F $30,055.00 $32,251.00 $2,196.00F Would it be appropriate to evaluate the kitchen manager\'s performance based on this report? Why or why not? a.

Solution

a. In the given case, performance of Kitchen manager is evaluated according to comparison between actual and budgeted costs. However, it is to be noted that budgeted costs are calculated on the basis of budgeted units produced & sold which is often different from the one actually produced and sold. Kitchen manager performance in the given case is compared with higher budgeted costs on the basis higher budgeted units rather than the actual. More appropriate way of evaluating the performance will be on the basis of comparison between actual costs and costs as per flexible budget plan. Flexible budget plan is calculated on the basis actual unit produced multiplied by budgeted unit costs. Therefore, it can be said the given performance report is not appropriate for evaluating Kitchen manager\'s performance.