• Document: Income Statements (P&Ls)
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3 Income Statements (P&Ls) Inside This Chapter • The Importance of Income Statements • The Income Statement Format • Reading the Income Statement Chapter Learning Objectives After completing this chapter, you should be able to: • Explain the purpose of an income • Identify operating costs as statement. controllable, noncontrollable, • Identify the three major types of fixed, variable, or semivariable. financial information included in • Explain how managers read and an income statement. analyze an income statement. M03_NRA5241_01_SE_C03.indd 52 06/06/12 5:41 PM Key Terms accounting period, p. 58 fixed costs, p. 67 noncontrollable costs, beverage cost percentage, food cost percentage, p. 66 p. 64 p. 64 payment terms, p. 57 budget, p. 70 gross profit, p. 64 prime cost, p. 65 controllable costs, p. 66 income statement, profit and loss (P&L) cost of sales, p. 63 p. 54 report, p. 54 cost of sales percentage, investor, p. 56 revenue source, p. 61 p. 64 lender, p. 56 semivariable costs, p. 67 expense timing, p. 65 net earnings, p. 70 variable costs, p. 67 Case Study “Well, will we get our bonuses this month or not?” asked Marco, the assistant manager at the Waterfalls Grill. He was talking to Kayla, the establishment’s manager. Both Marco and Kayla were paid a monthly salary. However, if their operation achieved monthly financial targets established by the owners, then Kayla and Marco qualified for bonuses. It was one day from the end of the month, and Marco was getting anxious. “We’ll hit our targeted revenue numbers,” replied Kayla, “but I’m not sure about our costs. I hope we did well on those, but I just don’t know the totals on all of our expenses yet. So I can’t tell for sure if we’ll hit our profit target.” 1. Why do you think owners would tie their managers’ compensation to their ability to achieve targeted revenue, expense, and profit goals? 2. How frequently do you think managers should be informed about the financial performance of the operations they are managing? What will happen if they are not informed? 53 M03_NRA5241_01_SE_C03.indd 53 06/06/12 5:41 PM CHAPTER 3    Income Statements (P&Ls) The Importance of Income Statements Owners and managers of restaurant and foodservice operations want to regularly assess the financial status of their business. They seek answers to three important questions: • What is the amount of revenue being achieved? • What is the level of expense being incurred? • What is the amount of profit being achieved? Managers of nonprofit restaurant and foodservice operations such as those in hospitals, nursing homes, schools, and colleges have the same concerns about

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