Saudi owns and manages a restaurant featuring Middle Eastern

Saudi owns and manages a restaurant featuring Middle Eastern cuisine. His operating results for this year are listed below. For next year, Daudi expects that revenue will increase 5 percent. He also expects that the percentage of revenue he spends on food will remain unchanged, but that employee raises and rises health care costs will mean he will spend 10 percent more for the cost of labor next year that he spent this year. Because of new cost control measures he plans to implement, Daudi expects the total amount that he will spend for other expenses next year will be unchanged from this year.

Help Daudi prepare a budget for next year that will show the amount of revenue, expenses, and profit his operation will likely experience. Show each amount in dollars and as a percentage of revenue. Should Daudi\'s profits next year be greater or lesser than this year? By how much?

This Year Actual Percent Next Year Budget Next Year Percent

Revenue $1,500,000 100%

Cost of Food 35%

Cost of Labor 30%

Other Expenses 20%

Total Expenses 85%

Profit $225,000 15%

Solution

Budget for Saudi owned Middle Eastern Cuisine Year Percent IN $ This Year Actual expense in $ Revenue next year increased by 5% Percent Next Year Budget Remarks Revenue    1500000 100% 1575000 Revenue increases 5% from USD 150000 to USD 1575000 75000 Increase in Revenue is USD Cost of Food   35% 525000 551250 35% Cost of food remains same at 35 % but value increases due to change in revenue proportionately Cost of labour 30% 450000 519750 33% cost of labour will increase 10% plus increase due to change in revenue other expenses 20% 300000 315000 20% remain same but increase due to change in revenue total expenses 85% 1275000 1386000 88% expenses increases Profit 225,000 15% 225000 189000 12% the profit falls by USD 36000