MMV Inc., opened a chain of businesses several years ago that provide quick oil
ID: 2742612 • Letter: M
Question
MMV Inc., opened a chain of businesses several years ago that provide quick oil changes and other minor services in conjunction with a convenience operation consisting of a soup, sandwich, and snack bar. The strategy was that as customers brought autos in for oil changes, they would likely use the convenience operation to purchase a sandwich, bowl of soup, beverage, or some other snack while they were waiting for the work to be completed on their autos. The oil change operation occupies 80% of the facility and includes three service bays. The soup, sandwich, and snack bar occupies the remaining 20%. A general manager is responsible for the entire operation, but each segment also has a manager responsible for its individual operation. Recently, the following annual operating information for the soup, sandwich, and snack bar at one of MMVs locations caught the general manager's attention. Sales for the year were $295,000, and cost of sales (food, beverages, and snack items) are 50% of sales revenue. Operating expense information for the S 4,500 8,100 57,000 89,000 27,000 29,000 12,900 3,900 5,900 24,000 Food service items(spoons, napkins, etc.) Utilities Wages for part-time employees operation manager's salary General manager's salary Property taxes Food equipment depreciation Building depreciation While investigating these operating expenses, MMV Inc. determines the following Utilities are allocated to each segment based on square footage; however, 50% of the amount allocated to the soup, sandwich, and snack bar results from operating the food equipment. . The general manager's salary is allocated between the segments based on estimated time spent with each operation. It is determined that 15% of the general manager's time is spent with the convenience operation. .Advertising is allocated to each segment equally but could be reduced by $3,900 if MMV decided to advertise only the auto services. · Insurance is allocated to each segment based on square footage, but only 20% of the amount allocated to the soup, sandwich, and snack bar results directly from its operation. . Property taxes and building depreciation are allocated to each segment based on square footage. Required: a. From the preceding information, calculate the operating income from the soup, sandwich, and snack bar operation that has caught the general manager's attention.Explanation / Answer
Step-1:
Calculation of Net operating income:
Pariculars
Amount
Sales
$ 295,000.00
Cost of sales
$ 147,500.00
Gross profit
$ 147,500.00
Food service items
$ 4,500.00
utilities
$ 4,050.00
wages for part time employes
$ 11,400.00
General manager salary
$ 4,050.00
Advertising
$ 25,100.00
Insurance
$ 2,580.00
property tax
$ 3,900.00
food equipment
$ 5,900.00
Buildig depression
$ 24,000.00
Net operating income
$ 62,020.00
Step-2:
These ate item of Operating expenses is relevant to decision of discounting the opeartion:
Pariculars
Amount
Sales
Xxx
Cost of sales
Xxx
Gross profit
Xxx
Food service items
Xxx
Utilities
Xxx
wages for part time employes
Xxx
General manager salary
Xxx
Buildig depression
Xxx
Net operating income
Xxx
Step-3:
The operating income = $62,020
MMV occupies = 80%
Soup , sandwich = 20%
= $49,616
= 12404
MMV operting may decrease, if soup, sandwich discountinues.
Step-4:
MMV shouls continues the soup, sandwich and snack bar operations, because if MMV dicountinues, the net operating income may decrease.
Pariculars
Amount
Sales
$ 295,000.00
Cost of sales
$ 147,500.00
Gross profit
$ 147,500.00
Food service items
$ 4,500.00
utilities
$ 4,050.00
wages for part time employes
$ 11,400.00
General manager salary
$ 4,050.00
Advertising
$ 25,100.00
Insurance
$ 2,580.00
property tax
$ 3,900.00
food equipment
$ 5,900.00
Buildig depression
$ 24,000.00
Net operating income
$ 62,020.00
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