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

2011 Current Ratio = Current AssetsCurrent Liabilities =

667,901.47406 ,207.19 = 1.64

2012 Current Ratio = Current AssetsCurrent Liabilities =

845,734.12472,346.67 = 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 LiabilitiesTotal Capital =

2012 Inventory turnover = Total LiabilitiesTotal 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 LiabilitiesTotal Capital =

472,346.67413,387.45 = 1.14

2012 Debt to Equity ratio = Total LiabilitiesTotal Capital =

406,207.19306,694.28 = 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 ProfitSales =

657,184.711,244,301.77 = 0.53

2012 Gross Margin = Gross ProfitSales =

2,440,148.724,046,616.97 = 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

2011 Return on Assets = Net IncomeTotal Assets =

56,694.28712,901.47 = 0.08

2012 Return on Assets = Net IncomeTotal Assets =

106,693.17885,734.12 = 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

        

Contribution Margin Ratio

CM ratio = Unit ContributionmarginUnit selling price =

Php205Php340 = 60%

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 = Php0+¿Expenses

Unit CM

Unit sales to attain the break even = Php 1,066,220Php 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 = Php0+¿Expenses

CM ratio

Sales amount to attain the break even = Php1,066 ,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