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The estimated figure presents that sales contributes towards the cash incomes of firm. In
accordance with the budget, it can be said that cash sales are increasing in all the respective
months. Sales in the month of November is increasing significantly in comparison with other
two that is 16.12%. In the month of December, sales has declined. Thus, it is important for
manager to develop plans that can lead to increase in sales. In contrast to this, there are several
components that contribute towards business expenditures. It involves capital expenditure for
purchasing assets like Furniture and Vans whereas operational expenses is comprised of
expenditures related with salaries, petrol charges, lightning, energy charges etc (Lambert, Leuz
and Verrecchia, 2012). The expenses of the business declined in October whereas it has increased
in other two months. In contrast to this, changes in percentage show that in October, cash
expenses declined by 71.53% which is the reason of elimination in the capital expenses. Based
on the analysis, it has been determined that capital expenditure would result in increasing
expenses that has an adverse impact on the availability of cash. By execution of suitable control
tool, expenses can be reduced.
3.2 Calculation of unit costs and pricing decisions
Cost sheet of Blue Island Restaurant includes expenses involved in buying steak,
vegetables as well as other ingredients. Further, it involves payment of labour and other
overheads. The absorption of overhead is done through technique which is known as absorption
costing. Selling prices of meal offered is determined on the basis of cost incurred in the process
of production (Duchin, Ozbas and Sensoy, 2010). As per the scenario, determination of prices is
done by adding mark up of 40% on cost. Further, the rate of value added tax is 20%.
Determination of prices for Blue Island Restaurant is as under:
Discount
nd
Year Proposal 2 factor@10% Discounted value
(1200)
0 1 (1200)
1 300 0.909 272.7
2 400 0.826 330.4
3 500 0.751 375.5
4 600 0.683 409.8
5 500 0.621 310.5
Residual value 50 0.621 31.05
NPV 529.95 (530 Approx)
Profitability ratio
Liquidity ratio
Efficiency ratio
Solvency ratio
Profitability ratio: Gross profit of Blue Island as well as Sweet Menu Restaurant are 0.66
and 0.63 respectively. However, net margin ratio are 0.13 and 0.01. In both the cases,
Blue Island possesses higher profitability. This implies that financial performance of Blue
Island is sound in comparison with Sweet Menu Restaurant.
Liquidity ratio: Current ratio of Blue Island is 0.63 whereas, in case of Sweet Menu
Restaurant, it is 1.78. In addition to this, quick ratio of Blue Island as well as Sweet Menu
Restaurant are 0.15 and 0.63 respectively. By analyzing these, it can be gained that
liquidity position of Sweet Menu Restaurant is higher which presents that company is
capable to meet its short term obligation.
Efficiency ratio: Asset Turnover ratio of Blue Island as well as Sweet Menu Restaurant
are 2.4 and 1.79. This implies that Blue Island makes utilization of assets in an effective
manner.
Solvency ratio: Debt equity ratio of Blue Island is 0.58 whereas for Sweet Menu
Restaurant, it is 0.41. Higher debt equity ratio implies greater risk. Here, Blue Island is
making use of higher debt in comparison with equity.