Managerial Accounting

Denver runs a restaurant business, operating from rented premises in the centre of a large town. His business has been relatively successful; he has succeeded in making a small profit each year, but he feels that he could do better if he expanded the business. Denver is a sole trader and the only person with whom he can really discuss business strategy, in complete confidence, is his accountant, Dylan. He has arranged a meeting with Dylan to discuss possible future directions for the business. He starts the meeting by explaining some of the ideas he’s had to improve the business: ‘The fundamental point is that I need to expand the number of covers. I can’t do this in my current premises at Hanover Road, and I would need to move. There’s a freeholdbuilding for sale on Cross Street with a restaurant on the ground floor. If I bought that I could have half as many covers again as I have now. I could sell my house and then move into the upper part of the building. That would help to keep the mortgage down to a reasonable level. I’ve also been wondering about making some fairly major changes to the menu. My net profit margin, as you know from the annual accounts you’ve just prepared for me, is only about 6%. I would like to cut out the less profitable menu items. I think I know which ones are less profitable but I can’t be sure. As you know, I’m open six evenings a week at the moment. I’m wondering about starting weekend lunches as well, but I don’t know whether I could make enough money to justify keeping the place open.’

Advise Denver on the type of information – financial and non-financial – he needs in order to make decisions on the three points above (the advice can be given in fairly general terms).

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