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ACFI 5013 Applied Financial Skills – Assignment 1
Exeter Public House
John Exeter, the owner of Exeter Public House (“EPH”) recently attended a management taster
session. John was enlightened by the speaker about the use of financial statements as a
management tool. After the event, John has phoned you, who currently prepared EPH’s
financial statements, a couple of questions for him to decide the future direction to go, such as
introduction to a more robust budget planning in future years. As John does not wish to forget
the key points, he wants you to write the answers to him as a report instead of verbal
conversations.
Information currently available in your record:
Exeter Public House
Statement of Comprehensive Income
For the year ended 31st December 2021
£
Sales Revenue 500,000
Less: Cost of Sales 100,000
Gross Profit 400,000
Operating Expenses
Marketing 10,000
Maintenance 5,000
Others 15,000
Rent 50,000
Salaries and Wages 160,000
Total Operating Expenses 240,000
Net Profit 160,000
In the year 2021, EPH sold 20,000 sets of meals (including beverages) with an average cover
price of £25. Variable food and drink average cost £5 per set. All other remaining costs can be
viewed as fixed as they cannot be spread based on the set of meals sold.
Required
You are explicitly required to answer the following questions in a written format:
1) What is EPH’s current breakeven point? (2 marks)
2) If the volume of the sales were to increase by 15 percent, by how much would EPH’s
profit increase? briefly comment. (6 marks)
3) If the revenue figure increases to £600,000, what would be the impact on profit?
briefly comment. (6 marks)
4) If EPH increased average menu prices by 10 percent, with the same level of quantity
sold, what would EPH’s profit be? briefly comment. (6 marks)
5) Demonstrate professionally why John cannot use price discrimination (All the
information available are given in the case scenario above). (10 marks)
6) Demonstrate professionally the role of budget to John. (10 marks)
If the question does not mention any changes, please assume it does not change or does not
exist (e.g. profits tax, same price, same volume, etc).
