Wk 9 EOC: Acquire the Restaurant?

Assume that the restaurant’s sales volume last year was approximately $1,400,000, and thus its loss for the year was about $98,000.


   1. If Dan and Loralei decide to buy the restaurant, some fixed costs would be incurred. List at least five important fixed costs that would be directly affected by the purchase decisions Dan would make regarding the acquisition of the property.
-Some fixed costs that are important and would directly affect the purchase decision include: mortgage payments, insurance policies, salaries, and taxes for both property and business.  the cost involved is the same (fixed) each month. For that reason they are called fixed costs. "...a fixed cost is one that remains constant despite increases or decreases in sales volume (number of guests served or number of rooms sold" (316).

   2. If Dan and Loralei operate the restaurant, some variable costs would be incurred. List at least five important variable costs that would be directly affected by the operating decisions Loralei will make as she manages the restaurant.
-Variable costs that could affect the operating decisions include the costs of food, drinks, cleaning supplies, utilities, and labor costs. "A variable cost is one that increases as sales volume increases and decreases as sales volume decreases" (317).

   3. Consider the decisions Dan and Loralei will make if they choose to acquire the restaurant. While clearly both are important, whose decisions do you think are the most important to ensuring the future profitability of the Watershed? Why do you think so?
-Both decisions are very important for a business. I think that Loralei's decisions are the most important to ensure profitability because just increasing sales could also mean the increase in variable costs, which could then be more expensive in the long run. Decreasing fixed costs to a safe level where the restaurant can still run perfectly and increasing sales will give them a buffer in which they could fall back to for whatever reason. "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!) (318).