Profit and Loss Account

Profit and Loss AccountName




Profit and Loss Account (Saturday and Sunday)

Income                                               $                      $

Pool table Saturday             300

Sunday                 300                             600

Food        Saturday               2000

Sunday                 700                             2700

Beverages Saturday            2000

Sunday                500                             2500


Less: Expenses

Food Costs                            770

Beverage costs                     538

Labor costs                            1160                           (2468)

Net Profits                                                                 3332

To accept the proposal to host the regional pool tournament, the business must ensure that it makes more than 4832 in profits. This amount will be equivalent to the normal profits that the business earns during weekends having paid the 1500 fee to the regional tournament chair. If the business makes less than 4832 in profits, then it would be advisable to reject the offer and embark on the normal business.

The business may easily achieve that money given that it will be a busy weekend and most likely, the increased pool game activities will lead to increased sales. However, in as much as this may be the case, the variable costs may increase due to the increased activities. The labor cost may be high because the employees will be working overtime. As noted in the case study, the business normally operates between 4 pm and midnight. The concerned weekend, however, would be different because the tournaments would commence at 9 and end at 7 pm. This means that the business must incur additional costs in the form of labor expenses.

Other variable expenses that would equally increase are the direct costs associated with food and the drinks. In as much as the business may record increased sales, the variable costs associated with the food and beverage items may also increase. Therefore, when making a decision to accept the offer, the financial manager must consider the increased variable costs and the ability of tournament to offset the costs.

As a way of ensuring that the business makes enough profits to offset the costs and pay the 1500 fee required to host the event, the managers need to adjust the prices and sell their food and beverages at a higher cost. At minimum, the new profit mark up should include the normal profit margin plus the additional costs per unit of beverages and the food items. The additional costs should be apportioned to the pool, beverages, and the food items in equal percentages. The percentages should then be used to calculate the markup for each of the three units of expenses.