I.
Company Profile
a. History and Overview
Savory Restaurant has been in existence since the 1950s. The first Savory Restaurant
was created and opened by the four Ting brothers who immigrated from China during the
1930s. They are namely: Mariano, Vicente, Tony and Jose Ting. Everything all started from a
small food store nearby Quaipo that sells noodles and all dishes alike, and became the
footnote of their best selling item: the Savory chicken.
The first branch was established at the tip of Escolta, which is located at the foot of
Jones Bridge in the 1950s. It was originally named as Savory Luncheonette and later renamed
as Savory Restaurant. Their chicken, in which recipe, remained a closely guarded family
secret, was evenly fried, with perfect brown skin. Its meat is moist and flavorful and is always
served with a delicious serving of gravy.
In the years that followed, the Savory restaurant enjoyed success with the four
brothers’ very hands-on approach in managing the company. This includes working in the
kitchen and serving the customers in the dining area. This had prompted them to expand into
three more branches: Cubao, Roxas Boulevard and in Padre Faura. However, during the late
1970s, the brothers decided to part ways and bring along with them their own branches.
The eldest of the brother, Mariano, got the Cubao branch, Vicente got the one on
Roxas Boulevard, Tony got the Padre Faura branch and the original Escolta branch was
passed to the youngest brother Jose. It only took a few years before the first three branches
closed down.
In November of 1985, the Savory Restaurant which is under the family of Jose Ting
has relaunched it with a new name: The Original Savory Restaurant and is currently handled
by Rolly Chiang. He is Jose Ting’s son-in-law and is the one managing the Escolta branch.
Later on, riding through the popularity during the 1990s and early 2000s, they started opening
branches in Quezon City, Mandaluyong, Pasay and several more in Manila.
The rebranded logo and name of the restaurant
To date, the Original Savory Restaurant has already expanded to over 13
branches. Although each of these branches is doing business under the name and style of
Savory Restaurant, they are managed and registered separately with the SEC.
The Original Savory Restaurant branch in Del Monte Avenue (Banawe) Quezon
City was registered under Stewart Gourmet’s Choice Inc. with the official business
address at 347 Del Monte Avenue corner Banawe St., Barangay Manresa, Quezon City. It
was only registered and incorporated in the Philippines on May 27 2011 (SEC
Registration No. CS201109024). The company is engaged primary to establish and
maintain restaurant, refreshments and other foods or commodities commonly served in
such establishments and to offer such other services to the public in connection with the
operation restaurant. The said company has a total number of five stockholders owning
one hundred (100) or more shares each.
b. Business Performance
The Del Monte (Banawe) branch started its operations during the last quarter of
2011. During the three months of operation, it was able to attain the total revenue of Php
1,244,301.77 with the net income of Php 56, 694.28.
In comparison, in the year 2012, which is considered its first full year of operation,
the company had total revenue of Php 4,046,616.97 and net income of only Php 106, 693.17.
c. Financial Statement Analysis
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠
667,901.47
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠
845,734.12
2011 Current Ratio = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 = 406,207.19 = 1.64
2012 Current Ratio = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 = 472,346.67 = 1.79
Analysis:
For both years, the current ratio is greater than 1 to 1. This is relatively good as the two-year trend
is showing to be upward. This means that the company has the ability to pay back its current
liabilities using its current assets in a reasonable time period.
2011 Quick Ratio =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠−𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑖𝑒𝑠
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
=
667,901.47−340,767.71
406,207.19
= 0.81
2012 Quick Ratio =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠−𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑖𝑒𝑠
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
=
845,734.12−742,682.12
472,346.67
= 0.21
Analysis:
By taking out inventory which is an asset that cannot be liquidated at market value in a timely
fashion, we can see that in conservative terms that the establishment is only able to pay Php 0.21
for every Php 1.00 of current liabilities using its current assets on the year 2012.The huge
difference between the two years was caused by the company increasing the inventory level.
2011 Working capital = Current Assets – Current Liabilities = 261,694.28
2012 Working capital = Current Assets – Current Liabilities = 373387.45
Analysis
Inventory turnover = Cost of Goods sold / Average inventory
2011 Inventory turnover =
𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
𝑇𝑜𝑡𝑎𝑙 𝐶𝑎𝑝𝑖𝑡𝑎𝑙
=
2012 Inventory turnover =
𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
𝑇𝑜𝑡𝑎𝑙 𝐶𝑎𝑝𝑖𝑡𝑎𝑙
=
Analysis
This ratio shows that the company’s inventory turns over more than one time in a year. This may
have resulted from overstocking in order to prevent material shortages or in anticipation of
constant rising prices.
2011 Debt to Equity ratio =
𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
𝑇𝑜𝑡𝑎𝑙 𝐶𝑎𝑝𝑖𝑡𝑎𝑙
= 413,387.45 = 1.14
472,346.67
2012 Debt to Equity ratio =
𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
𝑇𝑜𝑡𝑎𝑙 𝐶𝑎𝑝𝑖𝑡𝑎𝑙
=
406,207.19
306,694.28
= 1.32
Analysis
Debt to equity ratio determines the ability of a company to generate new funds from the capital
market. A high debt to equity ratio may make future financing difficult. Lower values are
favorable because they indicate less risk; high ratios is unfavorable because it means that the
business relies more on external lenders resulting in higher interest rates.
Gross Margin = Gross Profit / Net Sales
2011 Gross Margin =
𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡
𝑆𝑎𝑙𝑒𝑠
=
657,184.71
1,244,301.77
= 0.53
2012 Gross Margin =
𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡
𝑆𝑎𝑙𝑒𝑠
=
2,440,148.72
4,046,616.97
= 0.60
Analysis
This ratio indicates the percentage of sales available for expenses and profit after the cost of sales
is deducted from sales. Based on the results of ratios computed above, they show that the
company is able to retain a huge portion of its sales for paying off general and administrative
expenses. The levels of gross margin vary from one industry to another depending on the
business; but restaurants generally have a high gross margin.
Return on Assets = Net Income / Assets
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
56,694.28
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
106,693.17
2011 Return on Assets = 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 = 712,901.47 = 0.08
2012 Return on Assets = 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 = 885,734.12 = 0.12
Analysis
This ratio tells you what earnings were generated from invested capital (assets). Similar with
Gross Margin, ROA vary substantially and will be highly dependent on the industry. Although
the ROA figure is quite low, the increase in ratio in 2012 shows that the company is starting to
improve its operations in order to more effectively allocate its resources to make higher profit.
II.
Application of Managerial Accounting tools
a. Cost Classification
1. Product costs are the costs involved in acquiring or making the food item.
Usually, the food items are stored in the inventory until the time period when
they are sold and become part of the cost of goods sold.
2. Period costs are operating expenses during the period when they are incurred.
This includes the employee salaries and wages (including the thirteenth month
pay and the COLA – Cost of Living Allowance, utilities like water and
electricity, telecommunications, rent, depreciation, taxes and licenses.
3. The variable costs are costs that vary with the activity. The dressed chickens
would be part of this cost.
4. The fixed costs are costs that do not tend to vary with the activities. These fixed
costs would include the rent of the establishment, the employees’ salaries, and
depreciation.
5. The direct costs would be the dressed chickens, cooking supplies, the salary of
the cook, and the fuel used for the delivery. The indirect costs include the rent of
the establishment, the salary of the waiters and the cashier, and depreciation.
6. The controllable costs (partially) include the utilities such as water and electricity
and telecommunications. The uncontrollable costs are the taxes and licenses, and
depreciation.
7. The out of pocket costs include the utilities, rent, and fuel. The sunk cost is the
cost of buying a motorcycle used for delivery.
b. Cost Volume Profit analysis
Based on the audited financial statements for the year 2012, the total number of 1
whole chickens sold was at 11901 pieces. The current selling price is at Php 340 and the
variable cost per chicken is at Php 135. The fixed expenses per unit are at Php 90.
Contribution Income
Statement
Sales of 1 whole chicken
Sales
Variable Expenses
Contribution Margin
Fixed Expenses
Net Operating
Income
Php
Php
Contribution Margin Ratio
CM ratio =
𝑈𝑛𝑖𝑡 𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛
𝑈𝑛𝑖𝑡 𝑠𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒
𝑃ℎ𝑝 205
= 𝑃ℎ𝑝 340 = 60%
340
135
205
90
115
The CM ratio shows how the contribution margin will be affected by a change in
total sales. Savory Restaurant’s CM ratio of 60% means that for each pesos increase in
sales, total contribution margin will also increase by 60 cents.
c. Breakeven Analysis
Unit sales to attain the break even =
𝑃ℎ𝑝 0 +𝐹𝑖𝑥𝑒𝑑 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠
𝑈𝑛𝑖𝑡 𝐶𝑀
Unit sales to attain the break even =
𝑃ℎ𝑝 1,066,220
𝑃ℎ𝑝 205
= 5201 pieces
Analysis
In order to attain a break even in unit sales of the whole pieces of chicken, we
would have to divide the fixed expenses by the unit contribution margin. Based on the
audited financial statements, the fixed expenses consisted of the rental fee of Php120,000
,salaries and wages of Php
941,220 and depreciation expense of Php 5000. After
computing it, it resulted that the store should sell at 5201 pieces of chicken in order to
break even.
Sales amount to attain the break even =
𝑃ℎ𝑝 0 +𝐹𝑖𝑥𝑒𝑑 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠
𝐶𝑀 𝑟𝑎𝑡𝑖𝑜
Sales amount to attain the break even =
𝑃ℎ𝑝 1,066,220
0.60
= Php 1,777,033.33
The store would need to be able to generate sales of at least Php 1,777,033.33 in
order to reach the break-even point. Any amount over that will serve as the profit.
d. Job Order Costing
III.
Presentation of the case problem
IV.
Analysis of the problem
Typical of small restaurants, Savory Restaurant is affected by intensive labor
and food costs, which comprised 66.4 percent of gross revenues. Cost of goods sales
and salaries and wages expenses, including COLA and 13th month pay, account for
39.7 and 26.7 percent of gross revenues, respectively.
In the year 2012, the restaurant has incurred total administrative expenses of
2,287,729.91. This is relative higher than what was incurred on the previous year. It
accounted for about 56 to 60% of the restaurant sales for the year alone. Further
dissecting into the data, it shows that majority of the expenses are attributed to the
labor costs (wages plus the taxes and benefits paid), about 48 to 50%.
As evident on the income statement generated by the company for the year 2012,
there is an increase of sales or revenues by 225% while the costs increased by 173%.
This means that the company managed their costs effectively as the sales posed to be
higher than the costs.
V.
Recommendation/Conclusion
1. Increase sales further
Despite the substantial increase in the number of chickens sold in 2012, the
company must strive to increase the volume of its sales further to increase its net
income. It must continue to attract new customers while maintaining the old
customers. This could be done by having a better marketing effort from the company.
In addition to sending out flyers, it could also post ads in the internet or sponsor
cooking events. Meanwhile, the company could consider portion control, which is to
determine the optimal portion sizes to serve its customers that will make them happy
while at the same time, making the company’s bottom line happy as well.
2. Minimize operating expenses
Currently the company’s operating expenses comprise more than 50% of its
revenues. This is too high if we consider that it is even higher compared to the cost of
sales. Bulk of the operating expenses is due to salaries and wages including COLA
and 13th month, which represent 47.2% of total expenses. At present, the company
has 11 employees, 4 waiters/order takers, 1 cashier/manager, 2 chefs/cooks, 2
dishwashers and 1 delivery guy. For a small restaurant of 45 square foot area and 8
tables, this seems too many considering that majority of its orders are either take-outs
or for delivery. As such, management should reconsider its manpower complement
and let go some of its employees. Staff audits can be conducted to identify employees
who make too many errors or take too many breaks or fail to perform their jobs
quickly and efficiently. Meanwhile, cross-training allows management to cut staffing
during slow hours.
Another major expense to consider reducing is electric and water including
fuel and utilities, which pertains 29.7 percent of total expenses. The restaurant may
attempt to reduce its electricity cost by not turning off the air conditioner units when
there are no customers or switching to electric fans and/or air coolers, which
consumes less electricity.
VI.
References