Fine Dining

3

inside this Chapter

• the income statement Format • reading the income statement

Income Statements (P&Ls)

• the importance of income statements

Chapter Learning ObjeCtives

After completing this chapter, you should be able to: • explain the purpose of an income statement. • identify the three major types of financial information included in an income statement. • identify operating costs as controllable, noncontrollable, fixed, variable, or semivariable. • explain how managers read and analyze an income statement.

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Key terms

accounting period, p. 58 beverage cost percentage, p. 64 budget, p. 70 controllable costs, p. 66 cost of sales, p. 63 cost of sales percentage, p. 64 expense timing, p. 65 fixed costs, p. 67 food cost percentage, p. 64 gross profit, p. 64 income statement, p. 54 investor, p. 56 lender, p. 56 net earnings, p. 70 noncontrollable costs, p. 66 payment terms, p. 57 prime cost, p. 65 profit and loss (p&L) report, p. 54 revenue source, p. 61 semivariable costs, p. 67 variable costs, p. 67

Case study

“Well, will we get our bonuses this month or not?” asked Marco, the assistant manager at the Waterfalls Grill. He was talking to Kayla, the establishment’s manager. Both Marco and Kayla were paid a monthly salary. However, if their operation achieved monthly financial targets established by the owners, then Kayla and Marco qualified for bonuses. It was one day from the end of the month, and Marco was getting anxious. “We’ll hit our targeted revenue numbers,” replied Kayla, “but I’m not sure about our costs. I hope we did well on those, but I just don’t know the totals on all of our expenses yet. So I can’t tell for sure if we’ll hit our profit target.” 1. Why do you think owners would tie their managers’ compensation to their ability to achieve targeted revenue, expense, and profit goals? 2. How frequently do you think managers should be informed about the...