Finance and Accounting

Case Study 3 – Charlie Driver and 4C Company.
UPDATED: 10/21/2020
a. With reference to the financial statements prepared for the 4C Company for Year 2007 (see Case 2), 
prepare a common-size vertical statement. The local restaurant association provided Charlie with 
statistical data that are applicable
for a table service, family-oriented, lunch and dinner restaurant similar to his (see below). 
The data provide percentage ranges for typical elements of an income statement. Comment on how the 
operating income (before tax) of the 4C restaurant compares to similar restaurants. Is the 
comparison valid? Explain.
Sales RevenueLow (%) High (%)
Food operations68%84%
Beverage operations16%33%
Total Sales Revenue100%
Cost of sales, food30.0%40.0%
Cost of sales, beverages17.0%33.0%
Total Cost of Sales35.0%44.0%
Gross Margin62.0%71.0%
Operating Expenses
Wages expense26.0%31.0%
Salaries expense2.0%6.0%
Employee benefits expense3.0%5.0%
Employee meals expense1.0%2.0%
Laundry, linen, uniforms expense1.5%2.0%
Replacements expense0.5%1.0%
Services supplies expense1.0%2.0%
Menus, printing expense0.3%0.5%
Miscellaneous expense0.3%0.5%
Entertainment expense0.5%2.0%
Advertising, promotion expense0.7%2.5%
Utilities expense2.0%4.0%
Administrative expense3.0%6.0%
Repairs, maintenance expense1.0%2.0%
Rent expense4.5%7.0%
Property taxes expense0.5%1.5%
Insurance expense0.8%1.0%
Interest expense0.3%1.0%
Depreciation expense2.0%2.8%
Franchise expense (if applicable)3.0%8.0%
Total Operating Expenses51.5%62.5%
Operating Income (before tax)1.5%12.0%
b.  The guest count (covers) for the 4C restaurant for the year was 66,612. De- termine the overall 
average check (sales revenue) for food and beverages. In your opinion, does the average check for 
food and beverages appear reasonable for a budget-conscious, family-type table service restaurant?
c.  Calculate the cost percentages for food cost, beverage cost, and the total cost of sales as a 
percentage of total sales revenue. How does cost of sales for food, beverages, and the total cost 
of sales compare to the ranges provided for a restaurant of this type?
d.  Given the choice, would it be better to have a higher or lower percentage of
beverage sales revenue compared to food sales revenue?EXPLAIN your reasoning.
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