EOC Week 9: Acquire the restaurant?

1. These five important fixed costs will affect Dan's purchase decisions will be 
-Insurance 
-Property Tax
-Rent / Mortgage 
-Employee Salaries
-Utilities 

2. Loralei's important variable costs that would be directly affect the operating decisions would be. 
-Direct Materials
-Commissions
-Production Supplies 
-Credit Card Fees 
-Food Cost 

3. In my opinion I think if Dan and Loralei purchase the restaurant Loralei variable cost will be most important to focus on. If they work on lowering the variable cost they will make more profit from each table or customer. As their sales volume increases the cost of the sale will increase as well, "In the restaurant business, each steak you sell requires that you purchase a steak to replace it. The more steaks you sell, the higher your own steak cost will become because your steak cost will increase when your steak sales increase and decrease when your steak sales decrease" (Dopson, Lea R. Managerial Accounting for the Hospitality Industry. Wiley, 09/2008. [The Art Institutes]). Since the fixed cost will always be constant within the month to month business operations it's best to get your variable cost on a steady pace just like the fixed cost. "A fixed cost is one that remains constant despite increases or decreases in sales volume. Other typical examples of fixed costs include payments for insurance policies, property taxes, and management salaries" (Dopson, Lea R. Managerial Accounting for the Hospitality Industry. Wiley, 09/2008. [The Art Institutes]). The Restaurant that Dan and Loralei are acquiring about is at down$1,302,000 in revenue difference from last year at $1,400,000 and this year $98,000. "In some cases, the amount hospitality managers must pay for an expense will not be fixed but will vary based on the success of their business. Good managers seek to decrease their fixed costs to their lowest practical levels while still satisfying the needs of the business and its customers. Those same good managers, however, know that increases in variable costs are usually very good!" (Dopson, Lea R. Managerial Accounting for the Hospitality Industry. Wiley, 09/2008. [The Art Institutes]). Its clear from this information that the problem is the amount of customers coming into the restaurant and generating revenue for the business.