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MBA 6100 Case Study 1 Spring 2019
As a recently hired MBA intern, you are working in a consulting capacity to
provide an analysis for Al Dente’s Italian Restaurant.
A financial income Statement is presented below:
Cost of sales (all variable)
Total operating expenses:
Administative expenses (all fixed)
Net operating income
This income statement presents the sales, expenses and pre-tax operating income
for a local eating facility. At Al Dente, the average meal cost for lunches and dinners
are $20 and $40 respectively. Al Dente serves both lunch and dinner 300 days per
year and serves twice as many lunches as dinners.
As the MBA intern you are to prepare a managerial accounting focused report
to the owners of Al Dente’s Italian Restaurant, to include the following:
1. Prepare a contribution margin income statement using the given financial data.
Use the following format:
Cost of sales
Total variable costs
Total fixed costs
Net operating income
2. Compute the break-even volume of the number of lunches and dinners. Assume
that the CM% for each meal category is the same as the average CM% as calculated
in #1. Hint: To solve a break even sales mix, use the horizontal formula:
Net operating income = ($Sales – $Variable costs) – $fixed costs
Net operating income = $CM – $fixed costs
At Breakeven, NOI = $0
Therefore, $CM = $ Fixed costs
Now solve for the unit $CM for each item. Let X be the number of dinners, 2X the
number of lunches. $CM is the combined total of the $CM for dinners, and the $CM
3. Using the CM income statement format, verify that your calculated break-even volume for
lunches and dinners results in a NOI of zero (hint: in your prepared CM statement from #1,
breakout the Sales dollars
into subcategories lunch and dinner as shown below, using the values of X for in the # of
Present the entire CM statement at the BE level.
4. The owner of the restaurant is thinking of increasing sales through additional advertising,
which she will incur as an administrative expense. The proposed additional advertising
campaign will cost $25,000. She anticipates that the additional advertising expense will result
in an additional 6 lunches and 3 dinners on average, per day. Illustrate the impact on NOI
assuming the changes above (hint: show a revised CM statement). Hint: for this type of ‘whatif’, compare the additional contribution margin impact on NOI given the change in units and
change in fixed costs.
5. In order to increase NOI, the owner of the restaurant is considering adjustments to the
quality of food ingredients currently used. Rather than using premium ingredients, use of
average quality ingredients would reduce the cost of food by 15%. The owner proposes to not
change the current meal pricing. As the consultant, prepare a memo to the owner that
presents the pros and cons of this change in operations. What are the potential impacts on
revenue, costs, and net operating income may result from this change? The owner does not
want to see a decrease in net operating income. Could the owner make this change and
absorb a decrease in customers, and how would you demonstrate numerically to support your
analysis? What other factors or consequences of this decision should the owner consider
besides the financial impact of the change?
Hint: this qualitative analysis is to be thorough. Expect to present 400 words or so, and
support your analysis using calculated or given accounting data.
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