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Cost-Volume-Profit Analysis

Due date is morning at 09 december. Please contact if you can give early by tonight.

` UCW – ACCT 621

Class Assignment #2

Criteria Guidelines

1. Project Assignment

· The intent of the assignment is to apply the concepts discussed in the Chapter 11 readings, specifically, cost-volume-profit.

· Due Date – beginning of class, one week from the date of issuance (via email addressed to myself through the UCW portal)

· Required:

Put together a recommendation/ set of changes to the Chow business plan introduced in class. Identify areas that the plan was weak and introduce items that you believe would enhance the viability of the business. When you are complete, identify the number of the customers that the restaurant would need to serve in order to break even. As discussed in class, you may want to change the theme of the restaurant, introduce a new menu and/ or identify areas of cost containment. Each of these areas will have an impact on your break even analysis and I will be looking at how these changes are reflected in your final conclusion – number of customers required.
Ideally, the assignment will have an executive summary, a couple pages for your insights and analysis, and an appendix, possibly with the updated financial statements. Marks will be earned with originality, attention to detail, consistency of thought and focus, and level of professionalism (ie., writing quality/ font/ graphs, etc.) in communicating your findings.

While not required, you may introduce assumptions if the information within the business case incomplete. The assumptions made should be identified and included in the written submission. Grading of the assignment will consider the plausibility, detail and basis of the assumptions.

Based on your analysis, highlight areas that you believe the entity may pursue in order to expand/ grow its operations. You may also consider areas that it may consider to minimize exposure to various risks. Grading will be based on the realism of your strategy. This is optional, though an opportunity to score additional marks.

2. Marking scheme

· Written report = 10% of the overall class grade – will be graded based on logic/ realism, originality and ability to incorporate class concepts.

· Up to 5 pages in length, but could be greater if charts, pictures, etc. are included

· The appendix may include a new set of financial statements based on your assumptions

· Formatting will be considered, including a title page, executive summary, consistency in font, standard currency format (eg., $1,000 and not 1,000$), correct table alignment/ fit within pages, no abbreviations (except where previously defined, proper references (eg., APA or Chicago style)

· The course rubric is also provided below and will provide guidance for the overall marking scheme of this assignment.

Assessment Rubrics

Written Communication Assessment: Guideline

Did not meet expectations

Met expectations

Exceeded expectations

Writing Conventions (grammar, word use, punctuation, mechanics)

Frequent grammatical errors and misspellings inhibit readability, Informal language, abbreviations and
slang are used

Few grammatical errors and misspellings (e.g. three or fewer per page) Correct verb tense used Paragraphs flow from one to another Active voice pervasive

Free of grammatical errors and misspellings
Effective verb tense used Uses phrases and construction that delight as
well as inform the reader
Primarily active voice

Overall Effectiveness of
Piece (professional appearance, expression
and format)

Not formatted to
Specifications, Lacking professional appearance

Formatting is generally correct, acceptable
professional appearance.

Assigned format followed explicitly: Exceptional
professional appearance

Critical Thinking and Written Analyses Rubric – Scale Description/Guideline

Levels

Criteria

Did Not Meet Expectations

Met Expectations

Exceeded Expectations

Clarity

Writing is not clear. It is difficult to understand points
being made. The writing lacks
transitions, and few examples and/or illustrations are provided to support explanation or recommendations.

Writing is generally well organized and understood.
Transitions are used to facilitate
clarity. Some examples and/illustrations are used to support explanation or recommendations.

Writing is succinct, precise, effectively organized and
without ambiguity.
Transitions, explanation and elaboration are extensive to elucidate points. Detailed illustrations
and/or examples are used to support explanation or
recommendations.

Relevance

Critical issues/questions are omitted or ignored in the
writing.

Most of the critical issues/questions are addressed in the writing.

All critical issues/questions are addressed completely in the writing

Depth of

Discussion

Ignores bias; Omits arguments
Misrepresents issues; Excludes data; Includes but does not detect inconsistencies of information; Ideas contain
unnecessary gaps, repetition
or extraneous details; Sees no arguments and overlooks differences

Detects bias; Recognizes
arguments; Categorizes content; Paraphrases data;
Sufficient detail to support conclusions and/or
recommendations

Analysis includes insightful
questions; Refutes bias; Discusses issues thoroughly; Critiques content; Values Information ; Examines inconsistencies; Offers extensive detail to support conclusions and recommendations; Suggests solutions or implementation

Breadth of

Discussion

Omits arguments or perspectives; Misses major
content areas/concepts;
Presents few options

Covers the breadth of the topic without being superfluous

Considers multiple perspectives;
Thoroughly delves into the
issues/questions; Thoroughly discusses facts relevant to the issues

Integration of all Elements of

Reasoning

Fails to draw conclusions or
conclusions rely on author’s
authority rather than strength of presentation; Draws faulty conclusions; Shows intellectual dishonesty

Formulates clear conclusions with adequate support

Assimilates and critically reviews information, uses
reasonable judgment, and provides balanced, well
justified conclusions

Internal

Consistency

There is little integration across the sections of the
paper. Several inconsistencies or contradictions exist. Few of the issues, recommendation and explanations make sense
and are well integrated.

Sections of the paper are generally well linked/connected.
Only minor contradictions exist. Most of the issues,
recommendations and explanations make sense and are well integrated.

All sections of the paper are linked. There are no contradictions in the writing. All issues,
recommendations and explanations make sense and are well integrated

Values: Level 1: 10%, Level 2: 50% and Level 3: 100%

Business Plan – Sept

. Executive Summary

1.1 Business Description
1.2 Services
1.

Customers
1.4 Management
1.

Objectives
1.6 Summary of Financial Projections

2. Business Overview

2.1 Vision and Mission
2.2 Background Info
2.3 Ownership
2.4 Location and Facilities

3. Products and Services

3.1 Key Features of the Products and Services
3.1.1 Dinner
3.1.2 Lunch
3.1.3 Alcohol
3.1.4 Coffee
3.1.5 Atmosphere
3.1.6 Service
3.2 Production of Facilities
3.3 Comparative Advantages in Production
3.3.1 Specialized Skills
3.3.2 Access to Inexpensive Materials

4. Industry Overview

4.1 Market Research
4.2 Size of the Industry
4.3 Key Product Segments
4.4 Key Market Segments
4.4.1 Local Market – Vancouver
4.4.2 Tourism
4.5 Purchasing Process and Buying Criteria
4.5.1 Buying Criteria
4.6 Key Industry Trends
4.

Industry Outlook

5. Marketing Strategy

5.1 Target Markets
5.2 Description of Key Competitors
5.3 Analysis of Competitive Position
5.4 Feasibility Study
5.5 Target Area Analysis
5.6 Pricing Strategy
5.7 Promotion Strategy
5.

Distribution Strategy

Table Of Contents

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2

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6. Management and Staffing

6.1 Organizational Structure

6.2 Management Team
6.3 Staffing
6.4 Labour Market Issues

7. Financial Structure

8. Regulatory Issues

9. Risks

10. Business Strategy

10.1 Implementation Plan
10.2 Exit Strategy

. Financial Plan

11.1 Discussion of the 3 Year Cash Flow Statement
Year 1 Financials
Year 2 Financials
Year 3 Financials
11.2 Discussion of Projected Balance Sheet
11.3 Projected Balance Sheet
11.4 Discussion of Projected Income Statement
11.5 Projected Income Statement
11.6 Notes to Financial Projections
Notice to Reader

Appendix

12.1 Location Map
12.2 Views
12.3.a Renderings – Bar Area
12.3.b Renderings – Dining Area
12.4 Architectural Floor Plans
12.5.a Competition Map
12.5.b Competition Listing
12.6 Neighbourhood Map
12.7 Postal Code Map
12.8.a Menus – Dinner
12.8.b Menus – Lunch
12.9 Staff Resumes
12.10 Organizational Chart

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83

1.1 Business Description

You enter CHOW and you feel it immediately. It is that undeniable sense

of something done right, but you can’t put your finger on it yet because

by opening the door you’ve simply turned the first page of a story; it’s

only when you leave that the entire story has unfolded

At the door, you are greeted like a friend and once seated you notice

that everyone is relaxed, you hear laughter and conversation, see smil-

ing faces people enjoying good company, excellent food and drink.

The servers are knowledgeable and confident, unhurried and a little

bit cheeky. You scan the room and are struck by the subtle attention

to detail, the lighting, the furniture, the music and sound. It is an expe-

rience that operates on the premise of simplicity; the best possible

ingredients expertly prepared and served professionally in an inviting

atmosphere. Clearly you’ve come to the right place, and later, as you

leave, you are sincerely thanked and feel truly appreciated as a cus-

tomer.

Like all successful stories there are certain elements that make for a

good ending and it’s by achieving the proper mix of those elements

that will initially attract the customer and keep them, and everyone

they speak to, coming back. CHOW will face forward to the future with

one foot firmly planted in the contemporary, with its clean modern lines

and engaging service staff, while the other is firmly planted in the time

tested fundamentals of the restaurant business, with sound financial

and staff management and a firm control of costs.

It is with this vision, instilled in every manager and staff member, that

CHOW will become the Westside’s hottest new spot.

1. Executive Summary

1.2 Services

General Manager Mike Thomson’s dream is coming to life, and with

over 20 years in the hospitality business, it’s time to put his knowledge

to work. Simply stated: CHOW will serve great food in a comfortable

and stylish setting.

Mike, and his well chosen team, will bring to life a restaurant at once

modern and forward looking but one which never strays too far from

the tried and true formulas that keep the customers coming back.

Chef Jean-Christophe (JC) Poirier’s philosophy is about serving incred-

ible, accessible and consistent food rather than just catering to trends.

He strongly believes it’s about sourcing the best ingredients, preparing

it with care and creativity, and presenting it in the right atmosphere.

JC comes to his new kitchen having trained in the best restaurants

in Montreal and Vancouver, and wants to cook for people who are

passionate about food and who want to be surprised, educated and

enchanted by the experience.

CHOW’s subtle sophistication combined with Mike’s hospitality and

JC’s food will create an atmosphere where people meet, gather and

experience food and drink in a well-designed space, and where strang-

ers and friends feel equally welcome.

1.3 Customers

CHOW’s customers are dynamic people. They are diverse in back-

ground, income levels and professions but they all share at least one

thing – a love of food and the rich experiences that surround it. They

are quick to recognize when things are done right. They are people

who know what they want but approach life with an open spirit ready

to engage in new experiences.

1.4 Management

CHOW has assembled a strong management team. Mike Thomson

will be the General Manager with Floor support from Service and Wine

Consultant Michael Ziff, Bar Manager Christopher Flett and Somme-

lier Donna Kitagawa. Chef JC Poirier will manage all staff and opera-

tional functions of the kitchen, with assistance from the Sous Chef,

Vincent Fraissange.

1.5 Objectives

The primary objectives are to:

1) Develop the leased space into a fully licensed 90 seat occu-

pancy restaurant and bar.

2) Implement a cost effective promotional strategy to generate

sales of over 1.4 million dollars in the first year of

operations.

3) Fully repay the equity investment of $600,000, with interest

compounded monthly at 10%, by May of

2009

4) Become profitable in year one, profits of $480,000 by year three

(before amortization and taxes).

5) Ensure a 300 percent return on investment within 4 – 6

years.

1.6 Summary Of Financial Projections

Most important to CHOW is the financial success, which will be

achieved through strict financial controls and ongoing monitoring. Ad-

ditionally, success will be ensured by consistently providing high-qual-

ity service, food, cocktails and an evolving wine and beer selection.

The market and financial analyses indicate that with a start-up expen-

diture of $600,000, CHOW can generate over $1.4 million in sales by

year one, almost $1.8 million in sales by the end of year two, and at

least the same in year 3.

$1,800,000

$1,

600,000

$1,

0,000

$1,200,000

$1,000,000

$800,000

$600,000

$400,000

$200,000

year 1 year 2

year 3

$2,000,000 revenue
cost of sales
profit

Highl ights

CHOW Restaurant is scheduled to begin operations November 2006. CHOW

Restaurant Corp. is an incorporated company to be operated by Mike Thom-

son and JC Poirier and Mike Ricard.

2.1 Mission and Vision

Mission:

Our mission is to consistently provide our customers with pleasure for

the palate presented in a vibrant and eclectic atmosphere where ev-

erything we do is inspired by the world around us. CHOW will continue

to evolve as a business always rising gracefully to the challenges that

present themselves, complemented by staff that approach all elements

of the business with passion.

2. Business Overview

Vision:

Our vision is to create a profitable restaurant where our customers will

experience a sense of appreciation for a menu that offers diversity,

imagination and innovation. CHOW will provide an atmosphere and

ambience where our guests feel inspired to enjoy food, wine, music

and friends.

CHOW will be a social experience where people will experience bold

and exciting food combined with an engaging atmosphere where cus-

tomers become participants in their experience rather than just spec-

tators. We want to attract a crowd that…

– is fashionable but not trendy.

– is inspired by discovery and an awareness of the world

around them.

– is conscious of quality being exclusive of fads.

– likes to share with friends their new favourite spot.

– looks for something beyond an anonymous social scene.

– appreciates subtlety.

– welcomes the opportunity to experience something new.

We want CHOW to be an amazing alternative for the most dynamic

and interesting people that call Vancouver their home. We want to influ-

ence how people in this young city define their own culture and sense

of style.

2.2 Background Information

Mike Thomson:

Mike Thomson has been in the hospitality industry for over twenty

years. He began at the age of thirteen as a busboy at The Vancou-

ver Club and later worked as a waiter. He has worked in a number

of casual restaurants as well as better restaurants in Vancouver, Los

Angeles and Edmonton. He also spent a number of formative years in

sales and marketing in the wholesale clothing industry.

92 he became the Canadian Distributor of Inventory Xpress,

a company offering unique inventory control solutions to hospitality

based businesses. His involvement in the development and sale of

this system presented Mike with the opportunity to analyze many res-

taurants’ operations to see what was successful and what was not.

Local clients included Earls, The Keg, Ricky’s and a number of smaller

operations.

After his many early years spent serving and bartending, Mike took

on the role of General Manager at Subeez. Hired a few months after

opening, Mike began to focus the identity and subsequent marketing

of the downtown restaurant. By throwing a number of successful par-

ties which became a part of the restaurant’s culture he developed a

large and loyal clientele which frequented the restaurant as a meeting

and cultural spot. This was the beginning of his ever increasing and

growing clientele.

Moving back to serving and bartending, (with the responsibilities of

single parenthood taking a priority) he worked with Roger Gibson –

Gibson Investments (Shark Club), Brent Davies – Sequoia Enterprises

(Carderos) and Mark James – Mark James Ltd (Yaletown Brewing

Company). It was during these years where Mike observed and re-

ally learned the systems necessary to achieve and maintain financial

success.

As a result of his earlier success at Subeez and his reputation for suc-

cessful and unique promotions, Mike was hired to manage and market

Sonar. Sonar, at one time the most cutting edge nightclub in Western

Canada, had begun to lose its identity and its customer base. By re-

focusing the clubs branding and developing account relationships with

key national advertisers, he guided Sonar through its most successful

years. As a result of his success he was promoted by New World En-

tertainment (Sonar, Richard’s on Richards, Tokyo Lounge) to oversee

all promotions and bookings for the company.

Mike has currently been helping guide his wife, Ceanne, to success-

fully expand her hair salon, Gloss, and bring it to its latest location in the

same block as

the res

taurant.

Jean-Christophe (JC) Poirier

In 2001, JC began training at the Restaurant Les Remparts where he

began as the garde-manger, was quickly moved up to the first cook

position and later was promoted to Sous-Chef – all in the space of

eighteen months. Winner of the Grands Prix du Tourisme Quebecois in

2001 and 2002 and a member of the James Beard Foundation since

2003, Restaurant Les Remparts is renowned in Quebec for beginning

the careers of many significant young chefs in Eastern Canada.

But, he really began to feel his passion and develop his creativity and

curiosity when he was hired at Normand Laprise’s renowned restau-

rant Toque! (a member of the Relais & Chateaux association) in Mon-

treal in 2003. Toque! on all the best French (and usually the expensive

subcategory) and Fusion lists, is consistently voted one of the best

restaurants in Montreal and Canada year after year in various food

and critic’s polls. The type of cuisine served is typically described as

French but is really a regional market cuisine using only the best sea-

sonal products. As much as is possible, they work with the local farm-

ers and organic growers. Chef Normand Laprise is the inspiration for a

whole generation of young chefs.

“Training with Chef Laprise created my vision and philosophy on food;

he taught me to be proud of the local products, that simple dishes are

better than complex creations and that there has never been or can

ever be a great restaurant using second-class ingredients.”

JC worked his way up to the Chef de partie station at Toque!, some-

thing that most cooks who have worked there never achieve. Chef

Laprise noticed the talented young cook and started to pass along

more responsibilities and continually exerted more pressure to push

himself to perfection. About to be promoted to Sous-Chef, he decided

instead to travel and experience new styles of cooking.

Moving to Vancouver in 2004, he joined Rob Feenie’s staff at Lumière,

where their commitment to excellence is renowned throughout this

city. Voted Best Restaurant and Best French Restaurant by Vancou-

ver magazine for an unprecedented seven years, JC assumed the

responsibilities of junior Sous-Chef overseeing all daily operations of

the kitchen. His skill at menu planning and ordering was quickly recog-

nized by Rob and he was given more responsibility overseeing four sta-

tions and eight employees. Many of the JC’s creations and techniques

are still shown on the Lumière web site. With such a large menu, Marc-

Andre Choquette (Chef de cuisine) needed the support and creativity

of JC to find new and original ideas. Eventually though, feeling that he

was spending more time teaching than learning, he decided to again

look for a new challenge … cooking his own food.

Currently JC is working with Robert Belcham at C Restaurant. Work-

ing as Chef de partie butchery in an environment where local ingredi-

ents and farms are a huge part of the restaurant’s culture, has allowed

him to meet many new local organic suppliers. C’s mantra is that the

products used in the kitchen must meet the highest standards of fresh-

ness, flavour and quality. With Chef Belcham, JC is mastering the craft

of managing cooks, achieving efficient and accurate food costs, deal-

ing with local suppliers to negotiate better prices, receiving the deliv-

eries and returning any products that fall below the level of freshness

expected and finally the most important thing: how to stay profitable

in the restaurant business. Robert has taken a keen interest in JC’s

newest venture and is devoting significant amounts of his time to help

oversee many of the kitchen details. Because Robert and JC share

the same philosophy on supporting the local suppliers and economy,

Robert has informed JC that he will introduce him to all his suppliers

and provide his continuing support and guidance.

2.3 Ownership

CHOW Restaurant Corporation is a legal entity, which is separate and

distinct from its members (shareholders). Each shareholder has lim-

ited liability. A creditor with a claim against the assets of the company

would normally have no rights against its shareholders, although in cer-

tain circumstances the shareholders may be held liable.

2.4 Location and Facilities

The most important aspect of this point of discussion is the location.

The principals’ belief is, “Location, Location, Concept, and Execution.”

The location and the concept must be an excellent marriage. The ex-

ecution is in bringing the vision to life and then following through with

that vision. CHOW Restaurant, located at

21 Granville Street, has

negotiated an extremely favourable lease for the next ten years.

The location is situated between the Shaughnessy and Arbutus Ridge

neighbourhoods in the rapidly ascending South Granville business cor-

ridor. Downtown Vancouver is within minutes via the Granville Street

Bridge.

(See Appendix 12.1 – Location)

The significance of a restaurant’s storefront to captivate passersby

cannot be underestimated. The striking redesigned exterior with its

large windows provide a dramatic view that beckons motorists and pe-

destrians to take a closer look of the restaurant and signature bar. The

bold signage against the intriguing backdrop of the building’s structure

will make a unique statement to Vancouverites

With

00 square feet on the main floor, the room allows for a versa-

tile seating arrangement. The dining area simple in design and shape,

with its beautiful ebony hued floors and high ceilings will instil a sense

of comfort mixed with vibrancy. There will be both table and banquette

seating providing many options for seating guests. The bar area will

be well defined and offer a more adult cocktailing option not found in

or around the South Granville neighbourhood.

The lower floor at 1500 square feet, will house the professionally en-

gineered kitchen featuring a design capable of serving well over the

projected capacity of 90 people.

The rear of the building with the exterior wall moved in five feet cre-

ates a porch area with overhang. A deck will be added to complete a

licensed patio for dining. This area, with the excellent full south-west-

ern exposure and only low rise heritage buildings to the north, will fea-

ture sunlight throughout the majority of the afternoon and evening. A

quiet well lit spacious Westside patio – again features not found with

the other patios in the neighbourhood.

(See Appendix 12.2 – Views)

2.4.1 Parking

Granville Street is a major connector to Downtown Vancouver from

the south part of Vancouver and the southern suburbs of Richmond,

Delta and White Rock.

Metered street parking is available throughout the South Granville area

and there is an ImPark lot located just up the block near the building in

the alley. This will only be necessary for the lunch and early evening

crowds, since after six pm there is street parking available for blocks

surrounding the building. Parking for the dinner crowd will not be an

issue.

For lunch, while most people prefer to walk because of time restraints,

the back parking spaces will be made available for the takeaway lunch

business. The rear entrance will provide added convenience for the

takeaway lunch customers.

2.4.2 Local Venues

The Stanley Theatre is across the street and to the south. Also we

are only a half block walk for the members parked at the Vancouver

Lawn Tennis Club. While there are no other venues in the immediate

neighbourhood, Granville Street being a major traffic artery will provide

a great post events connector venue for those people stopping out-

side the traffic of downtown.

The food at CHOW is the main attraction. The raw materials are always para-

mount — never less than the best ingredients is the first step to creating great

food. We recognize that our customers’ primary motivation to walk in the door

is because they recognize quality. If the food does not meet our customers’

expectations then we cannot possibly create a complete experience. Nothing

else will matter. Not the wine, not the design, not the staff or the service.

The food will not disappoint. There are similar styles of local menu In Vancou-

ver but none offered in this type of atmosphere and with our attention to detail.

It is seasonal; it is fresh, bold unique flavours married to subtle undertones with

unexpected twists. Eating at CHOW is an experience.

All our ingredients are local, Yukon potatoes from Pemberton, lamb from Van-

couver Island, mussels and goat cheese from Saltspring Island, winter greens

from Aldergrove, etc…JC has worked with and knows all the local suppliers

from his time at Lumière and C. The markets and farms will be an ongoing

source of original and inspirational menu ideas and concepts.

An additional part of JC’s training and philosophy allows us to butcher in-house.

Buying whole fish or whole animals obviously makes a huge difference on the

quality control of the product. It allows us to see if the fish is fresh, we can age

the meat on the bone to improve the taste and tenderness and with a large

walk-in refrigerator we have the opportunity to cure product as well (duck pro-

sciutto, gravlax, saucisson, etc.).

There will be very little waste since the parts we don’t use for specific cuts, we

can use for the preparation and foundation of other dishes. For example:

– bones for soup and sauce stocks

– breast for cured prosciutto

– legs for confit or sausage for lunch pasta

– skin transformed into duck fat for confit

– liver transformed into duck liver mousse serve

This system not only allows us to portion the cuts into the shape and weight of

our choosing but also creates the opportunity for stricter controls on the cost

of every item. Buying the whole animal rather than pre-portioned, half-frozen-

parts not only makes more sense financially but it also creates better cooks.

3. Products & Services

They see the finished dish from the very beginning; learn about food cost and

how to use every usable part of the animal in order to cut down on waste.

JC will also be using a method of cooking he has been extensively trained in

known as sous vide. It involves vacuum sealing foods in plastic (cryovac) and

very gently and slowly cooking it at a low temperature. Because there is such

a large taste difference, local stars Lumière and West, and top US restaurants

like French Laundry, Per Se, Charlie Trotter’s and Daniel are all big fans of the

method. While it can take up to two hours to cook, the advantage is, once

the meat is cooked, all that is required at service is to open the vacuum pack,

season, sear the outside for three to four minutes and it’s perfectly done. The

texture, the even cooking and the sealed-in flavour and moisture attract top

chefs to the method. Additionally, there is much less waste as proteins do not

shrink and even vegetables and fruits retain their moisture.

3.1 Key Features of Product and Services

3.1.1 Dinner

The dinner menu is an exciting introduction to the passions and knowl-

edge of JC Poirier. “I don’t believe there is a perfect cuisine. For me

cooking is more a form of expression that combines ideas about cook-

ing and eating, and using only the best ingredients. It is more about

love and caring than about special recipes. I always ask myself, what

do I like to eat? The menu is changed seasonally or when I have a new

idea. Every dish I make at CHOW is a combination of the past and the

future, of everything I am inspired by and everything I’ve learned.”

The menu will be weighted towards smaller portion meals allowing for

people to share and experience more flavours. The room’s seating

will promote a conversational ambience about the food. There will

also be a few larger main course items for those not wishing to share

or sample a variety of dishes.

The menu also features imaginative and innovative vegetarian fare.

CHOW supports the fact that some people have different ideas about

their health and diet and will strive to create unique and flavourful veg-

etarian dishes. Also, many of the regular dishes can be changed to

satisfy vegetarian customers. All servers will be well informed about

what dishes can be modified to accommodate special requests.

(See Appendix 12.8.a – Dinner Menu)

3.1.2 Lunch

Although South Granville shoppers and workers want an alternative to

the same old sandwich and fries fare currently offered in the area, they

still want fast service and reasonable prices. All lunch menu items can

be served within 10 minutes and pricing is to be no higher than $11 for

regular lunch items. The lunch crowd in this area is vast and diverse

and is not as well served as it could be.

The lunch menu selection is fresh and dynamic, many flavours but

never too heavy. It will always be original and offer a generous selec-

tion. Daily produce deliveries allow the flexibility required to create daily

fresh-sheets which also helps to keep waste to a minimum.

The lunch menu will be available for takeout service. Proper “custom-

ized” takeout containers will be utilized. This will also allow for the ca-

tering of lunches for local businesses. The unique two story building

with an alley level rear entrance and four parking spots will allow for

quick pick-up of takeaway orders direct from the kitchen.

This menu will require only minimal kitchen staff, which will aid in lower-

ing labour costs.

(See Appendix 12.8.b – Lunch Menu)

3.1.3 Alcohol

An attraction at CHOW will be the well thought out selection and

pairings of wine by the glass. While the wine list is still in progress, it

promises to be outstanding. Our Sommeliers, Michael Ziff and Donna

Kitagawa are working with Mike and JC to pair wines with the menu

items. At least once a month they all meet to cook and taste wine.

The process has already begun with a collection of friends and food-

ies that have provided honest feedback on the food and wine. The

wine selection will evolve as the menu changes seasonally.

For wine connoisseurs, there will be a smart selection of wines from

all the important wine growing regions with a noteworthy selection of

well-known wineries. There will be 10-12 wines offered by the glass,

ranging from $7 to $15 a glass, with specials being offered regularly.

There will also be a fine selection of local BC wines. Prices on the

wine list will range from $28 to $400 and there will be choices for all

tastes. Stylish carafes and reserve wine glasses will be on hand for

the more expensive wines. Wine tastings are already underway with

local wine representatives, to ensure all supplies and promotions are in

place well before the opening.

Beer will also be a large part of the pairing process. In the current mar-

ket it is important to provide a strong selection of specialty beers to

accompany your food. We will stock a selection of world class beers

from Interbrew complemented by local seasonal brews to offer our

customers a well balanced tap choice.

Wine and beer education will be a large part of ongoing staff training to

give them the tools necessary to recommend wine and beer for cus-

tomers whose knowledge does not match their appreciation.

We will also have several seasonal cocktails developed by Christopher

and Michael. These cocktails will also use only fresh ingredients and

look to the menu for inspiration.

A Restaurant Class 1 liquor license has been applied for. Mike has had

discussions with both Guy Gusdahl and Cathy Wilson in the Vancou-

ver City Licenses and Permits, and both have confirmed the license

being no problem. The BC Liquor Board have also been contacted

and the license will be confirmed upon proper adherence to the pro-

vided floor plans.

3.1.4 Coffee

Coffee will be given the respect it deserves. All “regular” coffees will

be served Americano style – there will be no filter coffee offered. Ev-

erything will be made from the espresso machine. While this may

require additional labour, this aspect will be something to add to the

restaurant’s reputation as a business devoted to attention to detail.

This will insure that all coffees are charged for and that all coffees are

served fresh and hot. We are sampling many fine local bean houses

and have several excellent choices.

A complete selection of herbal and black teas will be offered served

using individual tea presses; which again will serve to confirm the res-

taurant’s commitment to local excellence.

3.1.5 Atmosphere

Although the success of a restaurant is the result of a complex com-

bination of many variables, and without tremendous focus on the food

there is no possibility of longevity, the atmosphere can never be count-

ed out.

By paying attention to the even the smallest details Mike will create

an atmosphere that is both engaging and relaxing. The mood will be

vibrant and warm attracting a fashionable and contemporary crowd.

There will be an air of awareness, a room and its guests educated in

current events, art, music and culture both fine and pop. The attentive

staff will always strive to create but not manipulate the experience. It

will be original, inviting and comfortable.

With two areas the atmosphere and energy will flow throughout the

space. The modern furnishings and clean lines of the architecture will

define each area’s character, intention and mood. White plates and

bowls will be used and while they keep the understated concept in

mind, they will be of above average quality. All the selected glassware

and flatware again will be simple and elegant.

The atmosphere of the restaurant will be further enhanced by an eclec-

tic and evolving selection of music that always matches the mood and

tempo of the restaurant’s different areas. The common thread to all

the genres of music will be its unique and non-mainstream sound. By

paying special attention to not only the style of music being played but

also the acoustics of the room employing proper multi-channel sound

engineering and effective design materials, the room will be always

balanced. The music will be non-intrusive but very much a part of the

atmosphere in the dining area while the bar and rear deck areas will be

louder and more up-beat. Often a restaurant’s sound is an afterthought

(or worse left to the discretion of the staff) and the result is a restau-

rant that seems off. Good sound is a great opportunity to enhance the

space using music as décor.

Lighting will also not be overlooked in creating the proper atmosphere.

By using primarily ambient and indirect lighting the mood will always

be warm and inviting. Again by varying the type, location and intensity

of the lighting the room will never be too dark to see your food or too

bright to require the server to adjust the lights.

It also important to remember that with all the kitchen facilities located

downstairs we won’t have to worry about the working noise of the

kitchen disturbing the ambience of the dining and bar areas

3.1.6 Service

The staff will be extremely professional but casual, always paying at-

tention to quality, the details and the entire experience. Everyone, from

the dishwashers, the servers and their assistants to the managers and

owners, will be aware of the customer and the need to understand the

entire operation. The style of service will be informal but always with a

professional flair.

It is the priority of CHOW to employ an intelligent, engaging and ener-

getic service staff. They are the interface to the customer and by be-

ing the major contributors to our atmosphere, character and reputation

they play a huge role in providing an outstanding experience. The staff

will be friendly, but also aware that some guests do not want to be en-

tertained. Staff must be able to laugh and joke with guests who want

this but remember that not everyone does.

Every customer will be greeted within seconds of walking in the door.

Staff will also work by the rule that any situation in the restaurant that

has somehow turned negative can be saved. With effort, the right skills

and support from management, there is no reason that any customer

should leave unhappy.

Management will continually use up-to-date motivational techniques

and keep teamwork as a mantra for the entire business thereby creat-

ing a family feeling. Silent shoppers will be employed to ensure that

the service standards are consistently met. All staff will be aware that

this technique is being employed.

Naturally, return customers are of the greatest priority and it’s important

that a customer’s dining experience is always as good as their last.

Mike will be the host and use his natural ability to sense the experience

they are seeking on a given night and then seat them accordingly to

ensure the evening begins and ends, as anticipated. Always aware

of all his customers, the mood of the room and the unique energy of

every night, Mike will make every effort to make sure that all leave with

the memory of an enjoyable evening again and again.

3.2 Production of Facilities

Demolition within the leased space will be finished by mid-September

and framing is scheduled to begin at the same time. Tim Knight and

Alain Freisen of Heatherbrae Renovations are managing the site with

MLK Renovations, the contractor hired to complete the carpentry fit

out and help to manage the plumbing, electrical, and HVAC trades.

Tim is an owner of the family run company Heatherbrae Renovations.

Tim has also designed and built several hospitality and retail spaces

in Vancouver, New York and Tokyo. Tim has become renowned for

his ability to creatively construct and manage restaurant and bar fit-

outs within extremely short deadlines. Tim is a good friend of Mike’s,

and trusts his experience to manage trades people and contribute cre-

atively to the design and functionality of the restaurant.

3.3 Comparative Advantages in Production

After several years managing and overseeing the maintenance of sev-

eral establishments, Mike has cultivated many key relationships with

both trades people and key suppliers to the industry.

3.3.1 Specialized Skills:

Robert Kleyn has been employed to complete the architectural draw-

ings required to gain approval from the City of Vancouver, and oversee

the drawings with the mechanical, structural and electrical engineers,

plumbing and sprinkler approvals. Mike and JC are working with Rob-

ert to plan every detail of the restaurant and cover all the functionality

details and ensure that minimal, if any changes occur at the construc-

tion stage.

Contracting Tim Knight from Heatherbrae Renovations will enable us

to achieve more for less. With Tim and Alain overseeing the manage-

ment of the project, the fit-out of CHOW will be completed in a timely

manner – saving on labour costs while ensuring the trades are man-

aged efficiently.

Pacific Restaurant Supply is a restaurant service and supply compa-

ny and has been a valuable asset for their knowledge and advice by

providing consultation and equipment wholesale services to CHOW.

They are a reputable company able to provide overall and ongoing ad-

vice and support throughout the fit-out and opening process.

Dennis Shiu of Linkfield Mechanical, Tim Lam of Ennova Structural En-

gineers and Patrick Lam of Pine Electrical were employed to complete

all mechanical engineering, plumbing, heating, structural and electrical

engineering drawings to Code for submission of a Major Change of

Use Application to the City of Vancouver. The necessary building per-

mits were issued August 18th, 2006.

Urthwurks has been contracted to build the signature bar and wall

treatments in addition to aiding in the final design and finishing of the

restaurant’s millwork.

3.3.2 Access To Inexpensive Materials

The services of Tim Knight also are making it possible for CHOW to

purchase unique furniture and fixtures. Tim with his extensive trade

contacts has allowed us to source for fixtures, furnishings and materi-

als at below the wholesale level.

Pacific Restaurant Supply is allowing CHOW to purchase required new

equipment at wholesale + 10%. Mike and JC have already attended

numerous auctions and have purchased several pieces of used kitch-

en equipment. This equipment has all been inspected and its quality

assured.

4.1 Market Research

A market study was performed in order to assess the feasibility of our

venture and point out key factors that would contribute to its success.

The market study was conducted using a variety of information sourc-

es including tourism and hospitality industry studies, Statistics Canada,

Internet sites, personal interviews and target market customers.

4.2 Size of Industry

In 2004, BC’s restaurant, caterer and tavern receipts reached an an-

nual record of more than $6 billion, an 18.2% jump from 2000.1 This

increase in spending is due to the convenience of not cooking at home

and the amount couples spend in restaurants per week.

4.3 Key Product Segments

We are taking the best from each of the following categories to create

a style of restaurant that does not segregate between income levels,

but rather attracts people with a common passion and appreciation for

food, wine, specialty beers and a vibrant atmosphere.

a) Fine Dining – outstanding service, beautifully presented

food, quality ingredients, professionalism, elegant atmosphere

and clean environment.

b) Trendy – attract trendsetters, stylish atmosphere, spe-

cialty beer, high-end house liquor selection, creative

cocktail list, tasting menus.

c) Casual Dining – price driven, comfortable, imposes no

dress code expectation.

4. Industry Overview

1 Statistics Canada, “BC Restaurant Sector Really Sizzles” Vancouver Sun: April 18, 2006

4.4 Key Market Segments

4.4.1 Local Market – Vancouver

British Columbia households spent $1,727 in restaurants in 2005.

This represents a

.2 % increase from 2000. This is significantly

higher than the national average of $1,519. 2

Households expenditure on food spent in restaurants was 24.2%

of their annual food budget, the highest in the country. 3

Restaurants include table service, fast food restaurants, cafete-

ria, snack bars, and food wagons. 60% of restaurant spending

took place in table-service restaurants; this can be interpreted as

every single British Columbian spending almost $20 a week in

table service restaurants. 4

Weekly spending on food in British Columbia ranges from an av-

erage of $

for households with incomes less than $20,000, to

$203 for households with incomes of $80,000 or more.

Individuals in the highest income group purchased meals from

restaurants on average twice a week, compared to once a week

in the lowest income group. 5

Our Shaughnessy / Fairview neighbourhood has a combined

population of 23,000 and boasts an average annual household

income of well over $80,000. The target market is between the

ages of 30 and 50 and comprises over

% of the neighbour-

hood. It is primarily English speaking and lives within 3 kilometres

or a 10 minute walk. 6

(See Appendix 12.7 – Vancouver Postal Codes)

2 Statistics Canada, “BC Restaurant Sector Really Sizzles” Vancouver Sun: Apr 18, 2006
3 Statistics Canada, “BC Restaurant Sector Really Sizzles” Vancouver Sun: Apr 18, 2006
4 The Daily: Feb 21, 2003
5 The Daily: Feb 21, 2003
6 Canadian Postal Markets, “Population by Age Group” & “Average Household Income”: 2000.

4.4.2 Tourism

Our tourism industry continues to be one of the most valuable sectors

of British Columbia’s economy. During the year of 2003, British Co-

lumbia hosted over 22 million overnight visitors who spent more than

9.2 billion in the province. 7

The Vancouver Coast and Mountains Region captured 50% of all

BC visitors, making it the most popular region in the Province.

These visitors spent $3.41 billion. Region residents stayed an av-

erage of 3 days, while international visitors averaged 4 days.

The majority of both regional and international visitors traveled to

Vancouver Coast and Mountains during peak summer (June to

September).

The main activities during their stay include in order: City sight-

seeing, nature oriented visitation, casual walking, visiting friends

and relatives, shopping, and downhill skiing/snowboarding.

Food and Beverage expenses accounted for one-third of total

dollars spent by BC resident visitors, and nearly one-half by inter-

national visitors. 8

4.5 Purchase Process and Buying Criteria

4.5.1 Buying Criteria

a) Price

The menu’s prices will reflect an overall 32% food cost. Menu

prices will be in the upper moderate range. All lunch items will be

in the $10 range while all the desserts will be $6. The daily spe-

cials will reflect a higher food cost because of their special nature.

7 Tourism British Columbia, “2003 Tourism Performance – preliminary estimate,” 2004.
8 Tourism British Columbia, “The Report on Visitors to Vancouver Coast and Region,” 2001.

They will truly be an extension of the chef’s philosophy and will be

excellent. The specials will never be those items that didn’t sell

well and therefore must be reduced in price to save them from

spoiling.

b) Quality

Purchases will be under the auspices of the chef and will be re-

viewed continually by management to ensure that the combina-

tions of the best, the freshest and the best-priced items for the

season are being purchased. The chef will continually be sourc-

ing the local farms and markets for those suppliers who meet our

high standards. The quality of food will rival fine dining establish-

ments. Our service, while not fine dining, will be professional but

not stuffy or over-bearing.

Our wine selection will not be one of the larger cellars in the city

but will be well rounded by offering choices from many wine grow-

ing regions and several different varieties of grapes. There will be

some high-end products for the connoisseurs in the room and all

wines will be chosen on the basis of enhancing the menu items.

c) Styling

Great time and research has gone into making CHOW a creative,

stylish atmosphere through the lighting, furniture selection and fix-

tures. The purpose of this research was to create character, an

essence of understated excellence and a subtle functionality for

the restaurant.

d) cuStomer Service

A high customer service focus within CHOW will be used to

make staff hiring decisions, and built into all staff training. Cus-

tomer service is essential to ensuring that customer decisions to

purchase our products will be positively reinforced. We trust this

strategy will ensure repeat business and promote word-of-mouth

referrals.

e) SuStainability

CHOW is aware that many factors contribute to making the res-

taurant business a fairly unsustainable industry. Goods have to

travel from afar, electricity and natural gas usage is high, food

waste, food packaging, etc. Whether Global Warming is a fact or

not is no longer the point, businesses should make it their respon-

sibility to offset their ecological footprint by reducing, reusing and

recycling. This will also be something that CHOW uses as part of

our marketing strategy. We will let people know that this is a crite-

ria in selecting the ingredients and products that go into our menu

items. The following steps will help CHOW do its part:

– Order local ingredients to reduce fuel consumption

– Order organic produce, whenever possible, to reduce

pollution

– Recycle bottles, plastic, cardboard and paper

– On-site butchering will reduce waste

– Composting of organic matter for local gardens reduces

garbage

– Intelligent use of resources like water, cooking gas and

electricity

4.6 Key Industry Trends

Canadians continue to spend the same amount for food per year

(with inflation taken into account), however growing preference for eat-

ing out since 1996 has increased to $0.30 of every food dollar being

spent in restaurants.

Within British Columbia almost $3 billion dollars was spent in full ser-

vice restaurants in 2003. This spending took place in 45,000 different

table service locations. In drinking places in British Columbia a further

$285 million was spent in 5,000 different establishments. 9

Trends in the way people eat has moved towards tapas style dining

9 Statistics Canada, “Household Expenditures on Food,” The Daily: Feb 21, 2003.

where people are served smaller portions, yet order more dishes. This

provides people with an opportunity to experience more flavours, in-

creases the opportunity to pair food dishes with our wine and special-

ty imported beers and helps create vibrancy by enhancing the dining

ritual amongst friends. Interbrew, the world’s largest beer supplier is

marketing their specialty beer products this way to grow awareness of

their products while encouraging prestige. 10

4.7 Industry Outlook

The economy of BC is expected to rise dramatically over the next

three years, especially with Vancouver being awarded the 2010 Winter

Olympic Games. Spending in the restaurant industry increased in Brit-

ish Columbia last year by 4 percent.

Although the industry continues to be a high risk, most restaurants fail

because of cash flow problems and a large part of that is because of

the seasonal nature of tourism. May through September everyone

is hugely busy but October through April everyone is going after the

same limited market.

CHOW is different because our primary market demographic is our

neighbourhood. While we will see a healthy percentage of the tourist

market it definitely will not be our primary market. This will allow us to

maintain a strong and consistent bottom line.

10 Statistics Canada, “Household Expenditures on Food,” The Daily: Feb 21, 2003.

5.1 Target Markets

In light of market research, our target market is broken up into the fol-

lowing groups:

a) WeStSide reSidentS

definitely the largest target market for CHOW. Residents of the

Westside are our ideal target market, they are not price conscious

as they have highly expendable incomes, eat out 2-3 times a

week, are style and fashion conscious, and looking for a sense

of community, and distraction from their busy schedules.

b) couPleS and FriendS

The restaurant will have an atmosphere encouraging of people

dating, and couples seeking time together or with friends. This

will not make the space awkward for singles, as the bar/lounge at

CHOW will be a social place where people meet each other and

develop a social network.

c) Food connoiSSeurS

These people have a passion for food, are interested in experi-

encing new flavours, enjoy enhancing their food with wine, and

being in a comfortable, stylish, and aesthetically pleasing atmo-

sphere to enjoy this culinary experience.

d) South granville WorkerS

People wanting a quick inexpensive lunch or those wanting a spot

for a lunch meeting. Workers will come to CHOW for after work

drinks and to enjoy the back deck. CHOW will become an ideal

lunch spot for local business owners and workers.

e) doWntoWn reSidentS

While obviously a part of our demographic, this group already has

many excellent choices without the trip over the bridge. But we

definitely anticipate our restaurant enjoying a destination status

as an alternative option to the usual Downtown spots.

5. Marketing Strategy

f) city viSitorS

These people have come to Beautiful British Columbia on holi-

days, to visit friends or family, are here on business, possibly they

are in the film industry or at a convention. These people will eat in

restaurants most nights and want to feel like they’ve discovered

or experienced something special.

5.2 Description Of Key Competitors

Competition can be broken down into two main segments – those

within the vicinity of the Westside (further broken down into lunch and

dinner competitors) and a few downtown establishments who would

currently service an overlap of our target markets. Please refer to the

list of competitors, and their respective locations at the below appen-

dix.

(See Appendix 12.5.a – Competition)

Our main competitor will be Bin 941, and especially Bin 9

a few

blocks away on Broadway.

Both

these restaurants have a great at-

mosphere, which attracts diners, and drinkers. The menu is very good

and served tapas style. Both restaurants are known for their upbeat

atmosphere due to the selection (and volume) of their music. The

crowd is generally younger – age 26 – 35. Our competitive advantage

will be our ambience. CHOW’s main competitive advantage over the

‘Bins’ is our space. These two restaurants are very small and you have

no choice but to hear the next table’s conversation. We will pay extra

attention to the acoustics of the room ensuring that people won’t have

to raise their voices to speak over the music and the people next to

them. There is no bar area to wait for a table at the Bins and reserva-

tions are not taken. We are competitively priced, and have a fresher,

more unique menu. Our menu will continue to evolve and we will draw

away a segment of their customers who will also like the added com-

fort and attention to detail that our restaurant will provide.

Vij’s has become somewhat of an institution in Vancouver, the atmo-

sphere is peaceful, the attention to detail goes beyond expectation,

and the service is impeccable. This Indian fusion restaurant is not a

competitor with CHOW based on its menu, but rather its reputation.

There is always a line-up (no reservations) at the door, the owner is

always present, and the bathrooms are beautiful. The pricing (and

the wait) has continued to climb, making room for CHOW to become

an alternate destination for the Westside community. Vij’s next-door

café also holds true as an equally impressive lunch competitor. Ran-

goli, with its superb (characterized by clever and functional packaging)

takeaway and Vij’s five item menu served in a small and fashionable

open room is always busy and never fails to hit the mark. Our quieter

and more settled ambience will offer an alternative to the organized

chaos of Rangoli.

West, Bishops and Lumière are all formal restaurants with high-end

clientele and expensively priced. They are all exceptional restaurants

and are consistently rated as the top restaurants in the city. While West

is only down the street, it is more a special occasion spot than a regu-

lar hang out. We will be competitive to these restaurants amongst the

culinary aficionados of Vancouver and obviously much better valued.

Lumière’s Tasting Bar and Feenie’s (located next door to each other)

are Rob Feenie’s more relaxed establishments. They offer more ca-

sual alternatives done to a high standard and will definitely be major

competitors. But they are both small with the room at Feenie’s being

cramped by the bar intruding on half the dining room.

CRU is more a meeting place for drinks more so than food, it is uber

trendy and does not have the character and charm of CHOW. The

food is good but with an ambience that lacks, we will definitely be a

major draw for their clientele.

Aurora Café is a French Restaurant recently opened on Main at Broad-

way. The food is excellent with a few good wine offerings. This spot

is all about food with a small service bar and a quiet ambience. With

less than forty seats, reservations are usually necessary with walk-ins

enduring waits of over an hour or more, without the comfort of a wait-

ing lounge/bar

Ouisi Bistro and Barneys do not come close to the quality and charac-

ter of CHOW. But because they are our closest competitors located

within a few blocks, they are worth mentioning. The food is bland and

run of the mill fare served in older tired rooms. Barneys is a popular

weekend brunch spot while Ouisi’s does have a bit of an evening fol-

lowing with the local art community, but neither will be able to compete

in terms of original menu items and the full service bar.

5.3 Analysis Of Competitive Position

Our competitive advantage is our menu; this is our main attraction and

the reason people will initially come to CHOW, and continue to return.

The overall menu style is newer to Vancouver, and has all the experi-

ence and innovation of JC’s training. Other chefs in Vancouver with

a similar background are serving up traditional French cuisine, in stuffy

atmospheres, affordable only by those who can afford it. JC is bring-

ing the foundation of old world techniques together with fresh, unique

ingredients for anyone that loves food and wants to experience more.

We also hold an advantage over our competitors because of the char-

acter of our space, the casual professional service and overall value.

The separate restaurant and bar areas allow us to create different en-

vironments for our customers. We have a casual, yet trendy lounge, a

high seating bar area and well designed deck. This alone will encour-

age repeat customers, who can request to be in different areas of the

restaurant depending on their mood, company, or occasion.

Ultimately we want people to feel like they are at a friend’s house for

dinner, all their inhibitions are gone, and they are free to laugh and take

pleasure in their meals. Although CHOW’s positioning in the market-

place is between fine dining and casual restaurants, it does not easily

fit into one category, such as West Coast or Fusion. Many different

demographics will be attracted to CHOW with the customers’ com-

monality being their passion for food and sense of belonging.

5.4 Feasibility Study

We conducted a feasibility study to thoroughly research our proposed

restaurant in relation to the existing marketplace and determine the

viability of this venture. The goal was to assess the local competition

and understand the marketplace in terms of demographics.

5.5 Target Area Analysis

Granville Street at 16th Avenue is situated between Shaughnessy,

Fairview Slopes, South Cambie and Kitsilano neighbourhoods. For a

definition and location of each neighbourhood’s boundaries, please

see the below appendix.

(See Appendix 12.6 – Vancouver Neighbourhoods)

CHOW technically falls within the boundaries of Fairview in the City

of Vancouver Zoning yet is more a part of Shaughnessy in the City’s

neighbourhood and community zoning. We have lived and worked in

the area for over seven years and have seen the tremendous growth

in the South Granville business district. Our location at the far south

end of the South Granville business corridor means significantly lower

rent. We pay $21.50/sq ft per year, whereas other businesses in the

district are paying as much as $80 with $

being the current average

lease rate. This advantage becomes more significant as the term in-

creases – our rent only increases to $22.50 from 2011 through 2013

and maxes out at $24 in 2014 and 2015.

5.6 Pricing Strategy

Our food will follow a penetration pricing strategy with the intent to

generate higher food and liquor sales volumes. We will keep our food

pricing reasonable to encourage additional alcohol sales. We believe

that if our meal prices are considered reasonable, our customers will

be more likely to order more alcohol, which has considerably higher

profit margins. However the food will always be the reason people

come back to CHOW.

5.7 Promotion Strategy

Our promotional strategy is targeted to create maximum awareness

of the excellent menu and welcoming atmosphere with the purpose

of initiating new and repeat business, which will be accomplished with

the most efficient and cost effective use of our marketing budget. The

promotional mix, under Mike’s direction, will initially emphasize word-of-

mouth advertising. It is still felt that for a single location restaurant that

the most effective promotional tool is to have clientele recommend the

restaurant to others. This will be accomplished by always exceeding

the guests’ expectations of quality, service and ambience from their

initial visits.

A mailing list of the principals’ clientele from other restaurants, clubs

and hair salons has been compiled. This list comprises over 2500

names and will prove to be invaluable.

Each guest will be treated as if a friend. All staff and management

will strive to remember as many guests’ names as possible. This will

be done through an ongoing customer recognition program that will

include complimentary items at the staff’s request, notations kept in

a daily journal to include the guest’s name, personal descriptions and

personal preferences. One percent of sales will be budgeted for com-

plimentary purchases for old and new guests alike. We believe it is

more cost effective to provide a valued customer with something for

free, and make them feel valued, than it is to advertise on a bus. Re-

peat business and word-of-mouth are invaluable.

It will be our mission to make sure that every customer leaves the

restaurant happy and that the staff be fully aware of our belief that no

matter how negative a service situation might get, that it can be turned

around and saved.

While it is a given that word-of-mouth advertising is the best form of pro-

motion; CHOW will also be using a publicist and a subsequent planned

news release to help keep a buzz shortly after the opening period.

Initially advance press will be sought by using Mike’s contacts.

The advantage of being involved with a busy modern hair salon, only

two storefronts south of the restaurant, is that it provides a constant

source of co-promotional marketing and clientele. These clients have

been a major part of Mike & Ceanne’s businesses for the better part

of ten years and know their abilities and tastes with respect to the hos-

pitality and fashion businesses. The restaurant will quickly become a

gathering centre for these discerning clients and the neighbourhood

who have been yearning for something more suited to their eclectic

and discerning tastes. It is the principals’ objective to have the restau-

rant defined as, “our restaurant” by this large group.

The staff and management, who will be encouraged to visit the local

businesses on a regular basis, will constantly woo the South Granville

neighbourhood businesses. These businesses, from time to time, will

also be given invitations to visit or incentives to try a take away item.

WeStSide reSidentS:

i. This will be where word-of-mouth will come into play with

Mike and Ceanne’s strong and enduring connections to the com-

munity through the scene makers and “mavens” of Vancouver.

Their son Tyler currently attends a school in the neighbourhood

and as a result Mike and Ceanne have a large group of friends and

acquaintances through this channel. Mike also grew up and at-

tended school in the immediate neighbourhood and is well known

by three generations of Westside residents.

couPleS and FriendS:

i. We will be sending out a marketing campaign – announc-

ing the opening of CHOW – via direct mail and the internet through

a database of over 2500 Vancouver residents, the majority of

which live on the Westside or Downtown. This will be an ongoing

strategy to inform people of special occasion events, and invita-

tions to try new seasonal menus.

ii. With dry runs scheduled for a week prior to opening in

November, we have budgeted to entertain large groups of local

residents, friends and other influential acquaintances. This will get

the word-of-mouth advertising initiated within these mavens, influ-

encers, and connectors. Mike has a following of customers and

friends who are anticipating the opening and are already spread-

ing the word of the restaurant to come.

Food connoiSSeurS:

i. Critics from The Vancouver Sun, The Province, Vancou-

ver Magazine, City Food, The Georgia Straight, Yaletown View,

Western Living, Where Vancouver, and Vancouver Lifestyles

Magazine will all be personally invited to dine at CHOW and pro-

vided with press kits containing high resolution photos relevant to

their reader demographic, editorial, and background information

on Mike and JC.

ii. Awards – Winning restaurant awards will be a strong fo-

cus in the kitchen and on the floor. The restaurant awards are a

tremendous form of advertising, and every effort will be made to

win Vancouver Magazine’s “Best New Casual Restaurant”, “Best

New West Coast and “Best New Bar” next April.

iii. Food connoisseurs are most likely to take note from The

Vancouver Sun, and word-of-mouth. Vancouver is a small city

and word of mouth travels like wildfire.

iv. This target group is not within one specific demographic

and will be part of a broad blanket and branding marketing strat-

egy.

v. Vivian Thom and Donna Kitagawa are local PR Queens,

and are famous for filling a room and getting people out. They are

good friends of Mike and Ceanne’s and “will work for food & mar-

tinis” to spread the hype before the restaurant opens, and com-

pile the ‘who’s who’ list for the Opening. Both will have ongoing

involvement in assisting with the increase of our customer base

and networking CHOW as a venue for art, music, and promotions

– especially for the months of January, February and March.

South granville WorkerS:

i. Small promotional cards will be distributed throughout the

South Granville and Broadway areas. This will include specific re-

tailers during September and October with quirky, stylish, intel-

ligent imagery and the word/question ‘CHOW?’ the back will con-

tain telephone and address details.

ii. Mike and Ceanne have established relationships with sev-

eral local retailers and there is already a sense of anticipation to

help build on the initial opening momentum.

iii. A campaign delivering selected lunch items or lunch invita-

tions to predetermined retail contacts in the neighborhood will be

employed to further raise awareness.

doWntoWn reSidentS:

i. Our Downtown PR person, Dianne Kitagawa is a well-

known resident of this area. Her network list is diverse and num-

bers over 1000 names in this geographical area. Dianne will be

extremely helpful in getting a very select group of these residents

over the bridge to experience CHOW and pass along the word-

of-mouth referrals to other people in their social circles.

city viSitorS:

i. “The Concierge Campaign” – After speaking with hotel

concierges about why they recommend restaurants, we chose a

referral program. Concierges complete a simple on-line registra-

tion, and then are delivered referral cards, which they add their

registration number to and pass onto customers. For every $500

spent by referred customers, concierges will receive a $10 tab up

to $100 per month. Servers add referral numbers into the POS

system, and a report is provided each month. Gift certificates will

be issued monthly and are transferable. This program will be suc-

cessful because the certificates will be an ongoing reminder to

concierges of the programs success, and assist CHOW to be

specific in marketing to visitors. This program can also be used by

retailers, and provides us with a growing database of contacts.

ii. Holiday Season and Corporate Parties

Another great way to promote the restaurant is to appeal to the

holiday and corporate party crowd. By attracting that seasonal

crowd you bring in customers that might not have otherwise been

to CHOW. The room is an ideal set up for medium size events like

launches, industry wrap parties, special events, Christmas par-

ties, etc.

other:

i. There will be cross promotions with Gloss hair salon to

promote to their large and growing clientele. Clients spending a

set amount on services and products will receive invitations to

CHOW as part of a bonus program.

ii. We will also use the off-season as an opportunity to de-

velop beer-tasting sessions paired with food at a set plate price.

We will cross promote events put on by Interbrew, suppliers of our

tap beers to create an enhanced experience for connoisseurs of

beer and lift the status of all of our specialty beers.

iii. Great care has been taken to ensure the atmosphere, dé-

cor and art is an attraction to appreciators of design. Part of the

promotional strategy includes gaining advertorial and subtle tar-

geted marketing in local design magazines and style newspaper

sections. High-resolution digital photography will be available with

pre-written text on the restaurant to provide to such media. Con-

tacts have been made with Vancouver Magazine, The Vancou-

ver Sun, Western Living and Vancouver Lifestyles Magazine.

5.8 Distribution Strategy

Reservations can be made by phone only. Specific Granville Street

retailers and production companies are especially good contacts for

the celebrity and tourism market. People feel more comfortable trying

a restaurant when it is personally recommended. The menu will be the

main attraction; the bonus attractions will be the bar and rear deck.

The strong film industry in Vancouver can provide a valuable and on-

going flow of high-end customers. Directors, producers, and actors

dine out each night they are in Vancouver, especially those working

on commercials and feature films. By taking reservations and provid-

ing a high-end menu we will become a destination for this market. Our

database of production companies, managers, and coordinators will

be provided with copies of our menus and business cards for spe-

cial seating arrangements. We will continue to provide updates to our

menu to these contacts

The referral program as mentioned in the Promotion Strategy will bring

visitors and local businesses into CHOW. We plan to develop joint pro-

motions with our most successful referral participants.

6.1 Organizational Structure

CHOW restaurant will be operated by Mike Thomson and Jean-Chris-

tophe Poirier. Key management has been chosen for the kitchen,

floor, and bar.

Our employees deliver our products and represent what we stand for

– friendly, professional and intelligent perfectionists.

We have and will continue to choose staff that is independent, experi-

enced, and share our passion for quality food and entertainment.

(See Appendix 12.10 – Organizational Structure)

6.2 Management Team

General and Floor Manager –

Mike Thomson

Eventually a Floor Manager will look to be hired when increased rev-

enues dictate more management. In the beginning though, Mike will

manage the floor in addition to his General Management duties.

Mike is meticulous about service. His experience in the hospitality in-

dustry of over 20 years, his excellent management skills, and his ability

to control the flow of customers into a restaurant, will ensure smooth

operations in the kitchen. Mike is superb at controlling labour costs.

He has an amazing presence anywhere he works, moves quickly, and

has a great eye for details. Mike will manage and assist in floor staff

training, be responsible for communications between the kitchen and

floor staff, scheduling and floor supply ordering.

Wine and Service Manager – Michael Ziff

Michael is passionate about wine, beer and food and has over 20 years

6. Management & Staffing

in the industry. He is meticulous, professional, intelligent and charis-

matic. Michael was initiated into this business in a four star Relais et

Chateaux and from there went on to work in high-end establishments

in Montreal, Toronto, New York City and Vancouver. All this training has

led to a style of service perfectly suited to CHOW, at once elegant,

knowledgeable, engaging and detailed but never stuffy. He is the key

in establishing our competitive advantage of carrying such a large se-

lection of specialty beers and wine. Michael will manage bar and floor

staff training, be responsible for communications between the bar and

floor staff, scheduling and liquor/wine supply ordering and inventory.

Most recently Michael was hired by Chambar from its inception and

charged with establishing Chambar’s wine program and service

style.

Bar Manager – Christopher Flett

Christopher has spent the last ten years working alongside Vancou-

ver’s most influential bartenders; Chris Stearns (Lumière Tasting Bar

and Feenie’s), Charles Forsberg – (Parkside), and Jay Jones – (West

and Nu). His ten years of experience in restaurant management has

included the espresso program at Subeez (which annually earned the

restaurant the accolades of “best cup of coffee in Vancouver”) and the

development of some of the city’s most innovative cocktail lists.

Christopher worked with Mike at Subeez during the height of its pop-

ularity, where the bar was selling more martinis from its enormously

popular cocktail menu than any other establishment in the city. He

has also worked and managed in many of Vancouver’s top restau-

rants and bars (Feenie’s, Nu, Sugar & Sugar, Salt). He is a perfectionist

about his bar and its operation. Christopher has always been known

for his ability to consistently deliver and manage high sales in fast

paced environments. His calm demeanor and personality make for a

highly motivated bar staff

Sous Chef – Vincent

Fraissange

Vincent, who worked with JC at Lumiere, is a resourceful high-perfor-

mance professional. He has demonstrated an ability to easily adapt

to unique situations and has an easy going and friendly personality.

He is a team player who brings out the best in his team. He has ex-

perience in menu planning, costing, stock control and all aspects of

kitchen management.

(See Appendix 12.9 – Staff Resumes)

6.3 Staffing

People with previous experience in the service industry will fill the key

non-management positions. Definitive job descriptions, staff manuals,

training and expectations will be given to staff with the aim to ensure

staff commit to take their jobs seriously. We will however make excep-

tions for intelligent, highly trained service staff that require employment

while obtaining university education.

Although all floor and bar staff will be encouraged to have their person-

ality shine through their work, there are certain standards of service

that will be in place to retain a consistency to the CHOW style so that

customers know what to expect from their experience.

All new staff hired after the initial training has taken place will be trained

with a senior staff member for a minimum of three days before being

allowed to take their own tables.

JC has developed a strong relationship with other restaurant owners,

chefs and restaurant staff in Vancouver. This network is the most valu-

able way to obtaining kitchen and cleaning staff. His experience and

knowledge make him an attractive chef to work for. He will provide

other chefs with valuable experience allowing them to learn with the

highest culinary standards, and receive apprenticeships.

Mike and especially Michael have a network of serving staff to draw

upon whom they have worked with over the past few years. Mike has

worked for several groups, including Earls, who have outstanding staff-

training programs. This level of training will be implemented in the train-

ing period, and thereafter with all new staff.

6.4 Labour Market Issues

Employee benefits will be paid in accordance with Labour Standards

Codes and Regulations of the Department of Environment & Labour.

Due to the increase in restaurant spending, unemployment in the in-

dustry dropped last year in British Columbia by 33,000, concentrated

in full service restaurants.12

Restaurant and bar staff is inherently transient. The best staff gravi-

tates to the most successful establishments, for the obvious reasons

that their income is gratuity based. Consultation with high-end staff

took place before the design of the restaurant was established. We

have taken into account the views of servers and staff about how to

make their workplace safe and efficient – so they can then concen-

trate their efforts on customers. It is very important for us to provide

an enjoyable and profitable workplace for our employees, as they are

delivering our products.

By opening CHOW with highly trained professional staff, we are set-

ting the standard for staff in the future. It is imperative for us to attract

the best.

12 Statistics Canada, “Labour Force Survey,” The Daily: Apr 4, 2003

The corporate structure of the company will be based upon two classes of

shares Common Class A shares and Preferred Class B (non voting) shares.

The Operating Group will invest $200,000 to acquire 400,000 Class A

shares.

The Investor Group will invest $400,000 to acquire 200,000

Class B shares.

Common Class A Share have the following characteristics:

1. voting shares.

2. earn per share equally with Class B

3. transferable with first right of refusal be offered to Class A share holders

and then Class B share holders.

Preferred Class B Share have the following characteristics:

1. non-voting shares.

2. earn per share equally with Class A

3. transferable with first right of refusal be offered to Class A share holders.

Investment and Security:

Initially $600,000 will be raised through the sale of shares. The preferred share-

holders will gain the right to receive a debenture payable upon the company

creating positive cash flow. There would be no distributions to shareholders of

either class until the debenture is paid off in full. The debenture will carry an an-

nual interest rate of 10%.

The unpaid debenture will be converted into Class A common shares upon the

4th anniversary of the debenture, if the debenture is still outstanding at the net

book value per share.

7. Financial Structure

The project has commenced and shares will be issued upon the investment.

The investment monies will be used to setup the company and build the res-

taurant.

Net book Value is equally to the Assets – Liabilities / number of Class A and

Class B shares.

Additional Investment:

Both Classes of share holders have the ability to invest further into the busi-

ness upon receiving the approval of the Class A shares holders. Further invest-

ments will be valued at Net Book value, until such time as the debenture is paid

off.

After the debenture is paid off a share evaluation method, approved by

% of

the outstanding shares holders, is required.

Operating Reporting:

The high cash nature of the restaurant industry ensures that a number of

checks and balances are utilized. The company will prepare daily cash flow

reports, monthly and annual statements. An accounting firm, agreed upon by

the investors, will review the company’s monthly and annual statements. In

addition the company will run weekly inventory reports, a point of sale system

that employs a continual sales journal and daily reconciling of the twice-daily

bank deposits to the daily sales.

We have obtained a Business Number (BN) from Revenue Canada, and reg-

istered with Workers Compensation Commission. We will obtain a business li-

cense from the City of Vancouver, and have already received our development

and building permits from the City of Vancouver. All mechanical, structural and

architectural submissions have been drawn to code to ensure disability and

fire access sufficient to meet Health and Safety regulations, fire inspection ap-

proval, and a primary food liquor license from the BC Liquor Board.

8. Regulatory Issues

9. Risks

Transient Labour Force

The service industry has a high turnover rate and we cannot change this. How-

ever, we can focus our energy on providing a profitable, professional work-

place for our staff with medical + dental benefits at a cost of $15/month to

us, and $15/month to the employee. We will come to be known throughout

the Vancouver restaurant community for our high hiring standards, which will

inevitably attract the type of employee we seek.

Ilness Or Injury

The greatest asset to CHOW is the skills of JC Poirier. If he were to become ill

or be injured, his salary is sufficient to hire a chef of his capabilities. Our Sous

Chef Vincent Fraissange has experience as a head chef, staff management

experience, and is completely capable of handling the ordering and operations

of the kitchen. Once familiar with the operations of delivering CHOW’s menu,

Vincent will be capable of covering JC’s position, thus reducing this risk.

Significant Increase In Propery Taxes

While our below market rent is set through the next ten years, we obviously do

not control our property taxes, which are part of our triple net rent. Vancouver

retailers have been watching the Commercial Property Tax increase for years.

Since 1983, following a policy that fixed the percentage of the civic tax load to

be paid by businesses, the value of residential properties has increased much

faster than business properties. The City of Vancouver’s municipal tax ratio for

commercial properties (5.47) is nearly double the national average (2.95). 12

Retail watchdog, Retail BC and other groups in the Vancouver Fair Tax Coali-

tion have been lobbying the civic government to address the inequities in the

property tax system. As a result of their efforts, the City of Vancouver has

stated that there will be no increase in commercial property taxes for the next

year. But what if there are increases in succeeding years?

Taking the rate of increase over the past five years and averaging it to the next

five years would result in additional occupancy cost of approximately $1175

per month by year 5. It is felt that after year 2 and the projected profitability of

the business at that point, that a significant increase in our property taxes will

not be a major risk.

12 The Montreal Gazette, “Property Tax Ratio in Major Canadian Cities – Fair”: November 22, 2004

10.1 Implementation Plan

CHOW Restaurant Corp. was incorporated on March 20th, 2006. The

lease for 3121 Granville Street was signed June 7th, 2006. Mechani-

cal engineering, architectural, plumbing & heating, electrical, and struc-

tural engineering plans have been submitted for the Major Change of

Use Building Application and the permits were approved at the begin-

ning of August. All drawings were completed to code to show due

diligence. Consultation with the Health Department was sought before

the submission and amendments were made prior to the Building Ap-

plication submission.

Tony Furniture, will start building the custom wall treatments the first

week of August, and demolition has begun of the existing walls within

the space. The HVAC (heat, ventilation, and air-conditioning unit) in the

rear and on the roof of the space have been removed and will be re-

placed. Full construction and renovation will begin the second week

of September. The following list will be completed by November 16th

to allow 3 days to install the floors and allow them to set. A week has

been scheduled for staff training and dry run operations.

Hood duct work

Plumbing and drainage

Kitchen drainage, waterproofing & tiling

Electrical and wiring

Kitchen containment

Bathroom containment, waterproofing & tiling

Bathroom plumbing, fixture installation

Front exterior wall

Move rear exterior wall and build porch and deck

Lighting installation

Back bar display and bar installation

Door and window installation

External sign, building signage & awnings

Seating and banquette seating construction

Wall painting and wallpaper

Install flooring

Install furniture

10. Business Strategy

10.2 Exit Strategy

After studying the success patterns of restaurants, it is apparent that

on or about the five year mark, restaurants either plateau or drop in

popularity and success.

Taking this and personal goals into consideration, Mike and JC are

looking at the following options. These options will be decided upon

with voting shareholders.

1. reFurbiShment:

This option would apply especially if CHOW continues to be huge-

ly successful and becomes known as an establishment within

the marketplace.

Shareholding investors would have the opportunity to be bought

out at market rate at this time by CHOW Restaurant Corp. and/or

other interested parties.

2. tranSFormed into a neW concePt:

If the marketplace were to dramatically change and a profitable

niche market became apparent, or the concept of CHOW were

to become tired, Mike and JC would look to transform CHOW,

and the name into a more profitable concept.

3. exPanSion:

To expand the concept of CHOW to:

another location

franchise

open another establishment within a new market niche

opportunity

In the latter, CHOW would expand to one or more locations with

the intent to become a group for the purpose of higher profitabil-

ity.

11.1 Discussion of 3 Year Cash Flow Statement

year 1

In year 1, sales of food and alcohol are projected to be over $1.4 mil-

lion with the total cash flow from operations expected to be $266

thousand before financing costs and government taxes. Chow has

projected a closing cash balance of $149,000 after financing and tax-

es at the end of Year 1.

It is assumed that vendor credit for the restaurant industry is rare; thus

all expenditures have been recorded on a cash and carry basis. There

are not expected to be material vendor liabilities within the first 3 years

of operations.

Start-up costs are projected to be approximately $

2,000 with the

majority of these costs incurred in the construction phase. During the

start-up phase there will be overhead costs of $16,000 and an addi-

tional $8,000 has been budgeted for staff training wages.

Repayment of the $600,000 equity investment will commence in June

2007, amortized over 24 months at 10%.

year 2

In year 2 the total cash flow from operations is expected to be $478,000

with sales of almost $1.8 million. Overhead and labour costs are ex-

pected to be consistent with the prior year. By month 24, there will be

a cash surplus of $250,000. In Year 2, CHOW will be required to pay

corporate income taxes on Year 1 income that amounts to $23,000.

11. Chow Financial Plan

year 3

Sales for year 3 will be over 1.7 million and cash flow from operations

is expected to be $480,000 before financing costs and government

taxes. Within 36 months there will be a cash surplus of $487,000.

Corporate income taxes paid on Year 2 income amount to $67,000.

52
$600,000

$500,000

$400,000

$300,000

$200,000

$100,000

year 1 year 2 year 3

operating cash flow

Operating Cash Flow

11.3 Cash Flow Statement – Year One

SALES

LUNCH FOOD

LUNCH LIQUOR

EVENING FOOD

EVENING LIQUOR

COST OF SALES

FOOD COST

LIQUOR COST

LABOUR

HEAD CHEF

KITCHEN STAFF

GENERAL MANAGER

FLOOR MANAGER

SERVING STAFF

BAR STAFF

BENEFITS

GROSS PROFIT

OPERATING EXPENSES

MARKETING & PROMOTIONS

MERCHANT FEES

OCCUPANCY

UTILITIES

REPAIRS & MAINTENANCE

GARBAGE REMOVAL

JANITORIAL SUPPLIES & SERVICES

LAUNDRY

GENERAL & ADMINISTRATIVE

PROFESSIONAL FEES

INSURANCE

VEHICLE

MISCELLANEOUS EXPENSES

OPERATING CASH FLOW

OTHER EXPENSES

CORPORATE TAX (17%)

NET CASH FLOW

BUILDING & OPENING COSTS

KITCHEN EQUIPMENT

BAR EQUIPMENT

FLOOR EQUIPMENT

OFFICE EQUIPMENT

MISCELLANEOUS SMALL EQUIPMENT

BUILDING COSTS

TRADESMAN COSTS

15% CONTINGENCY

TOTAL

CASH SUMMARY

OPENING BALANCE

EQUITY INVESTMENTS – PRINCIPAL

EQUITY INVESTMENTS – INTEREST REPAYMENT

CLOSING CASH BALANCE

Occupancy

6,000

2,000

8,000

(20,000)

2,000

8,233

5,000

400

15,633

(42,433)

60,650

18,217

Construction

8,233

40,000

600

10,000

50,600

(50,600)

70,000

10,000
10,000

5,500

8,000

225,000

110,000

50,250

488,750

0
600,000
60,650

December

0
0

44,100

27,409

71,509

14,112

10,9

25,0

3,000

9,500

3,000
6,000
2,000

2,350

25,850

20,5

715

1,430

8,233

358

358
358

800

536

1,500

400

1,0

15,760

4,824

4,824
18,217

23,041

January

5,3

1,096

17,640

10,964

35,090

7,1

4,824

11,9

3,000
9,500
3,000
6,000
2,000
2,350
25,850

(2,738)

351

702

8,233

175
175
800

263

1,500

1,800

400

15,102

(17,840)

(17,840)
23,041

5,201

February

10,7

2,1

35,280

21,928

70,180

14,308

9,648

23,9

3,000
9,500
3,000
6,000
2,000
2,350
25,850

20,3

702

1,404

8,233
351
351
351
800
526
1,500
400

1,053

15,670

4,704

4,704
5,201

9,905

March

16,170

3,289

35,280
21,928

76,667

15,817

10,087

25,904

3,000

13,300

3,000

2,500

9,000

3,000

3,380

37,180

13,5

767

1,533

8,233

383

383
383
800

1,500
1,800
400

1,150

17,908

7,005

7,005
9,905

16,910

April

18,480

3,759

40,320

25,060

87,619

18,0

11,528

29,604

3,000
13,300
3,000
2,500
9,000
3,000
3,380
37,180

20,835

876

1,752

8,233

438

438
438
800

657

1,500
400

1,314

16,847

12,567

12,567
16,910

29,477

May

18,480
3,759

60,480

37,590

120,309

24,528

16,540

41,0

3,000
13,300
3,000
2,500
9,000
3,000
3,380
37,180

42,061

1,203

2,406

8,233

602

602
602

1,000

902

1,500
1,800
400

1,805

21,054

29,5

29,588
29,477

59,065

June

24,640

5,012

80,640

50,120

160,412

32,704

22,053

54,757

3,000
13,300
3,000
2,500
9,000
3,000
3,380
37,180

68,475

1,604

3,208

8,233

802

802
802
1,000
1,203
1,500
5,000
400
2,406

26,961

41,514

41,514
59,065

(24,244)

(5,343)

70,9

July

29,568

6,014

90,720

56,385

182,687

37,309

24,960

62,269

3,000
13,300
3,000
2,500
9,000
3,000
3,380
37,180

83,238

1,827

3,654

8,233

913

913
913
1,000

1,370

1,500
400

2,740

23,464

59,774

59,774
70,992

(24,446)

(5,141)

101,178

August

29,568
6,014
80,640
50,120

166,342

34,084

22,454

56,538

3,000
13,300
3,000
2,500
9,000
3,000
3,380
37,180

72,625

1,663

3,327

8,233

832

832
832
1,000

1,248

1,500
400

2,495

22,361

50,264

101,178

(24,650)

(4,937)

121,854

September

24,640
5,012
80,640
50,120
160,412
32,704
22,053
54,757
3,000
13,300
3,000
2,500
9,000
3,000
3,380
37,180
68,475
1,604
3,208
8,233
802
802
802
1,000
1,203
1,500
400
2,406

21,961

46,514

46,514
121,854

(24,855)

(4,732)

138,7

October

21,560

4,3

70,560

43,855

140,361

28,616

19,296

47,912

3,000
13,300
3,000
2,500
9,000
3,000
3,380
37,180

55,268

1,404

2,807

8,233
702
702
702
1,000
1,053
1,500
400

2,105

20,607

34,661

34,661
138,781

(25,063)

(4,525)

143,855

November

21,560
4,386
70,560
43,855
140,361
28,616
19,296
47,912
3,000
13,300
3,000
2,500
9,000
3,000
3,380
37,180
55,268
1,404
2,807
8,233
702
702
702
1,000
1,053
1,500
400
2,105
20,607
34,661
34,661
143,855

(25,271)

(4,316)

148,928

ANNUAL

220,836

44,920

706,860

439,333

1,411,949

294,029

199,701

493,731

36,000

148,200

36,000

22,500

99,000

33,000

37,470

420,170

498,049

16,119

28,239

107,029

7,060

7,060
7,060

11,000

10,590

18,000

50,000

5,400

5,800

31,1

304,536

265,803

148,530

28,995

11.3 Cash Flow Statement – Year Two

MISCELLANEOUS SUPPLIES

OPERATING CASH FLOW
OTHER EXPENSES
CORPORATE TAX (17%)
NET CASH FLOW
CASH SUMMARY
OPENING BALANCE
EQUITY INVESTMENTS – PRINCIPAL
EQUITY INVESTMENTS – INTEREST REPAYMENT
CLOSING CASH BALANCE
December

43,120

8,771

105,840

65,783

223,514

32,704
22,053
54,757
3,000
13,300
3,000
2,500
9,000
3,000
3,380
37,180

131,577

2,235

4,470

8,233

1,118

1,118
1,118

1,100

1,676

1,800
400

3,353

26,620

104,957

104,957
148,928

(25,482)

(4,105)

224,297

January
16,170
3,289
35,280
21,928
76,667
28,616
19,296
47,912
3,000
11,000
3,000
2,500
6,000
2,000

2,750

30,250

(1,496)

767
1,533
8,233
383
383
383
1,100
575
1,800
1,800
400
1,150

18,508

(20,004)

(20,004)
224,297

(25,694)

(3,893)

174,706

February
16,170
3,289
35,280
21,928
76,667
28,616
19,296
47,912
3,000
11,000
3,000
2,500
6,000
2,000
2,750
30,250
(1,496)
767
1,533
8,233
383
383
383
1,100
575
1,800
400
1,150

16,708

(18,204)

22,680

(40,883)

174,706

(25,908)

(3,679)

104,235

March

19,404

3,947

61,740

38,373

123,464

45,942

29,821

75,764

3,000
13,300
3,000
2,500
9,000
3,000
3,380
37,180

10,520

1,235

2,469

8,233

617

617
617
1,100

926

1,800
1,800
400

1,852

21,667

(11,147)

(11,147)
104,235

(26,124)

(3,463)

63,501

April

22,176

4,511

80,640
50,120

157,447

15,817
10,087
25,904
3,000
13,300
3,000
2,500
9,000
3,000
3,380
37,180

94,363

1,574

3,149

8,233

787

787
787
1,100

1,181

1,800
400

2,362

22,161

72,202

72,202
63,501

(26,342)

(3,245)

106,116

May
24,640
5,012
80,640
50,120
160,412
15,817
10,087
25,904
3,000
13,300
3,000
2,500
9,000
3,000
3,380
37,180

97,328

1,604
3,208
8,233
802
802
802
1,100
1,203
1,800
1,800
400
2,406

24,161

73,167

73,167
106,116

(26,562)

(3,026)

149,696

June
29,568
6,014
90,720
56,385
182,687

25,190

16,928

42,118

3,000
13,300
3,000
2,500
9,000
3,000
3,380
37,180

103,389

1,827
3,654
8,233
913
913
913
1,100
1,370
1,800
6,000
400
2,740

29,864

73,525

73,525
149,696

(26,783)

(2,805)

193,634

July
29,568
6,014
90,720
56,385
182,687

32,014

21,852

53,866

3,000
13,300
3,000
2,500
9,000
3,000
3,380
37,180

91,641

1,827
3,654
8,233
913
913
913
1,100
1,370
1,800
400
2,740

23,864

67,777

67,777
193,634

(27,006)

(2,581)

231,823

August
29,568
6,014
80,640
50,120
166,342
32,704
22,053
54,757
3,000
13,300
3,000
2,500
9,000
3,000
3,380
37,180

74,406

1,663
3,327
8,233
832
832
832
1,100
1,248
1,800
400
2,495

22,761

51,644

51,644
231,823

(27,231)

(2,356)

253,880

September
24,640
5,012
80,640
50,120
160,412
37,309
24,960
62,269
3,000
13,300
3,000
2,500
9,000
3,000
3,380
37,180

60,963

1,604
3,208
8,233
802
802
802
1,100
1,203
1,800
400
2,406
22,361

38,602

38,602
253,880

(27,458)

(2,129)

262,894

October
21,560
4,386
70,560
43,855
140,361
37,309
24,960
62,269
3,000
13,300
3,000
2,500
9,000
3,000
3,380
37,180

40,911

1,404
2,807
8,233
702
702
702
1,100
1,053
1,800
400
2,105

21,007

19,904

19,904
262,894

(27,687)

(1,901)

253,211

November
21,560
4,386
70,560
43,855
140,361
34,084
22,454
56,538
3,000
13,300
3,000
2,500
9,000
3,000
3,380
37,180

46,643

1,404
2,807
8,233
702
702
702
1,100
1,053
1,800
400
2,105
21,007

25,636

25,636
253,211

(27,918)

(1,670)

249,259

ANNUAL

298,144

60,645

883,260

548,971

1,791,020

366,124

243,846

609,970

36,000

155,000

36,000

30,000

102,000

34,000

39,300

432,300

748,750

17,910

35,820

98,796

8,955

8,955
8,955

13,200

13,433

21,600

6,000
5,400

4,800

26,865

270,690

478,060

22,680

455,381

(320,196)

(34,854)

11.3 Cash Flow Statement – Year Three

SALES
LUNCH FOOD
LUNCH LIQUOR
EVENING FOOD
EVENING LIQUOR
COST OF SALES
FOOD COST
LIQUOR COST
LABOUR
HEAD CHEF
KITCHEN STAFF
GENERAL MANAGER
FLOOR MANAGER
SERVING STAFF
BAR STAFF
BENEFITS
GROSS PROFIT
OPERATING EXPENSES
MARKETING & PROMOTIONS
MERCHANT FEES
OCCUPANCY
UTILITIES
REPAIRS & MAINTENANCE
GARBAGE REMOVAL
JANITORIAL SUPPLIES & SERVICES
LAUNDRY
GENERAL & ADMINISTRATIVE
PROFESSIONAL FEES
INSURANCE
VEHICLE
MISCELLANEOUS SUPPLIES
OPERATING CASH FLOW
OTHER EXPENSES
CORPORATE TAX (17%)
NET CASH FLOW
CASH SUMMARY
OPENING BALANCE
EQUITY INVESTMENTS – PRINCIPAL
EQUITY INVESTMENTS – INTEREST REPAYMENT
CLOSING CASH BALANCE
December
43,120
8,771
105,840
65,783
223,514
32,704
22,053
54,757
3,000
13,300
3,000
2,500
9,000
3,000
3,380
37,180
131,577
2,235
4,470
8,233
1,118
1,118
1,118
1,100
1,676
1,800
600

2,794

26,261

105,315

105,315
249,259

(28,150)

(1,437)

324,987

January
16,170
3,289
35,280
21,928
76,667
28,616
19,296
47,912
3,000
11,000
3,000
2,500
6,000
2,000
2,750
30,250
(1,496)
767
1,533
8,233
383
383
383
1,100
575
1,800
1,800
600

958

18,516

(20,012)

(20,012)
324,987

(28,385)

(1,203)

275,387

February
16,170
3,289
35,280
21,928
76,667
28,616
19,296
47,912
3,000
11,000
3,000
2,500
6,000
2,000
2,750
30,250
(1,496)
767
1,533
8,233
383
383
383
1,100
575
1,800
600
958

16,716

(18,212)

65,277

(83,489)

275,387

(28,621)

(966)

162,311

March
19,404
3,947
61,740
38,373
123,464
45,942
29,821
75,764
3,000
13,300
3,000
2,500
9,000
3,000
3,380
37,180
10,520
1,235
2,469
8,233
617
617
617
1,100
926
1,800
1,800
600

1,543

21,558

(11,038)

(11,038)
162,311

(28,860)

(728)

121,686

April
22,176
4,511
80,640
50,120
157,447
15,817
10,087
25,904
3,000
13,300
3,000
2,500
9,000
3,000
3,380
37,180
94,363
1,574
3,149
8,233
787
787
787
1,100
1,181
1,800
600

1,968

21,967

72,396

72,396
121,686

(29,100)

(487)

164,494

May
24,640
5,012
80,640
50,120
160,412
15,817
10,087
25,904
3,000
13,300
3,000
2,500
9,000
3,000
3,380
37,180
97,328
1,604
3,208
8,233
802
802
802
1,100
1,203
1,800
1,800
600

2,005

23,960

73,368

73,368
164,494

(29,343)

(245)

208,275

June
29,568
6,014
90,720
56,385
182,687
25,190
16,928
42,118
3,000
13,300
3,000
2,500
9,000
3,000
3,380
37,180
103,389
1,827
3,654
8,233
913
913
913
1,100
1,370
1,800
6,000
600

2,284

29,608

73,7

73,782
208,275

282,057

July
29,568
6,014
90,720
56,385
182,687
32,014
21,852
53,866
3,000
13,300
3,000
2,500
9,000
3,000
3,380
37,180
91,641
1,827
3,654
8,233
913
913
913
1,100
1,370
1,800
600
2,284

23,608

68,033

68,033
282,057

350,090

August
29,568
6,014
80,640
50,120
166,342
32,704
22,053
54,757
3,000
13,300
3,000
2,500
9,000
3,000
3,380
37,180
74,406
1,663
3,327
8,233
832
832
832
1,100
1,248
1,800
600

2,079

22,545

51,860

51,860
350,090

401,950

September
24,640
5,012
80,640
50,120
160,412
37,309
24,960
62,269
3,000
13,300
3,000
2,500
9,000
3,000
3,380
37,180
60,963
1,604
3,208
8,233
802
802
802
1,100
1,203
1,800
600
2,005

22,160

38,803

38,803
401,950

440,753

October
21,560
4,386
70,560
43,855
140,361
37,309
24,960
62,269
3,000
13,300
3,000
2,500
9,000
3,000
3,380
37,180
40,911
1,404
2,807
8,233
702
702
702
1,100
1,053
1,800
600

1,755

20,856

20,055

20,055
440,753

460,808

November
21,560
4,386
70,560
43,855
140,361
34,084
22,454
56,538
3,000
13,300
3,000
2,500
9,000
3,000
3,380
37,180
46,643
1,404
2,807
8,233
702
702
702
1,100
1,053
1,800
600
1,755
20,856

25,786

25,786
460,808

486,595

ANNUAL
298,144
60,645
883,260
548,971
1,791,020
366,124
243,846
609,970
36,000
155,000
36,000
30,000
102,000
34,000
39,300
432,300
748,750
17,910
35,820
98,796
8,955
8,955
8,955
13,200
13,433
21,600
6,000
5,400

7,200

22,388

268,612

480,138

65,277

414,861

(172,460)

(5,065)

11.2 Discussion Of Projected Balance Sheet

The projected balance sheet for CHOW is strong, with total assets of

$626,066 in Year 1, and only $22,680 in liabilities.

Inventory is expected to stay consistent at $18 thousand for the three

years, as it is common practice to replace items as they are used and

management is committed to using only the freshest ingredients for food

preparation.

Furniture and equipment are amortized over 5 years on a straight line ba-

sis. Leasehold Improvements are amortized over 10 years on a straight

line basis.

The majority of the current liabilities are income taxes payable, which are

due to be paid within 3 months after year end. As previously mentioned,

all purchases will be on a cash basis and there is not expected to be a

significant balance of accounts payable.

The equity investment of $600,000 will be fully repaid by May of Year 3.

At the end of 36 months it is expected that the net assets of the com-

pany will be $775,000.

59
$800,000

$900,000

$700,000

$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
$0
year 1 year 2 year 3

total assets

Net Assets

11.3 Projected Balance Sheet

ASSETS

Current Assets

Cash
Inventory

Fixed

Assets

Furniture and equipment
Leasehold improvements
Less: Accumulated amortization

Total Assets

LIABILITIES AND SHAREHOLDER EqUITY

Current liabilities

Income taxes payable
GST payable

Total liabilities

Shareholder equity

Share capital
Equity investment
Retained earnings

Total liabilities and shareholders equity

2007

148,928
18,000

166,928

103,500
385,250

(29,613)
459,138

626,066

22,680
0

22,680
22,680

0
492,656
110,730
603,386

626,066

2008

249,259
18,000

267,259

103,500
385,250
(88,838)
399,913

667,171

65,277
0

$65,277

65,277

0
172,460
429,434
601,894

667,171
2009

486,595
18,000

504,595

103,500
385,250

(148,063)
340,688

845,282

70,694

70,694
70,694

0
(0)

774,588
774,588

845,282

11.4 Discussion Of Projected Income Statement

Income from operations for the three years is expected to be:

Year 1 – $1.41 million

Year 2 – $1.79 million

Year 3 – $1.79 million

As a percent of sales, wages and benefits are consistently 24% (with

27% in Year 1 attributed to higher training costs). This is well within

industry averages.

Net Income after interest, start-up professional fees, amortization and

income taxes is $110,730 (8%) for Year 1, $318,705 (18%) for Year 2,

and improves to $345,154 (19%) for Year 3.

5.0%

2.0%

2.0%
5.0%
5.0%

10.0%

36.0%

5.0%
5.0%

8.0%

5.0%
2.0%

advertising & promotion 5.0%
bank & merchant fees 12.0%

insurance 2.0%
janitorial & supplies 5.0%
laundry 5.0%
miscellaneous supplies 10.0%
rent 36.0%
repairs & maintenance 5.0%
rubbish removal 5.0%

general & administrative 8.0%

utilities 5.0%
vehicle 2.0%

11.5 Projected Income Statement

Income

Food sales
Alcohol sales

Cost of sales

Food cost
Alcohol cost

Gross Margin

Expenses

Advertising and Promotions
Bank and merchant fees
General and administrative
Insurance
Janitorial and supplies
Laundry
Miscellaneous supplies
Professional fees
Rent
Repairs and maintenance
Rubbish removal
Utilities
Vehicle
Wages and benefits

Income from operations (EBITDA)

Other items

Interest expense
Startup professional fees
Amortization
Income taxes

Net income

2007

$927,696
484,253

1,411,949

288,029
193,701
481,731

930,219

16,119
28,239
18,000

5,400
11,000
10,590
31,179

5,000
107,029

7,060
7,060
7,060
5,800

392,480
652,016

278,203

70,181
45,000
29,613
22,680

167,473

110,730

2008

1,181,404
609,616

1,791,020

366,124
243,846
609,970

1,181,050

17,910
35,820
21,600

5,400
13,200
13,433
26,865

6,000
98,796

8,955
8,955
8,955
4,800

432,300
702,990

478,060

34,854
–

59,225
65,277

159,356

318,705

2009
1,181,404
609,616
1,791,020
366,124
243,846
609,970
1,181,050
17,910
35,820
21,600

5,400
13,200
13,433
22,388

6,000
98,796

8,955
8,955
8,955
7,200

432,300
700,912

480,138

5,065
–

59,225
70,694

134,984

345,154

11.6 Notes To Financial Projections

1. SaleS

Food and alcohol sales are calculated using industry standard meth-

ods of estimating average per person spending on food and alcohol

for lunch and dinner based on a 28 day operating month. Occupancy

has been approved for 70 seats with an additional 20 outdoor seats

pending city approval after neighbourhood notification. The 20 out-

door seats are projected at 50% occupancy (assuming the adverse

impact of the weather) during the period of April through September. It

is assumed that there is no revenue from outdoor seating from Octo-

ber through March.

The estimated average per person spending is determined by taking

the price of all menu items, excluding the most and least expensive

of these items, and dividing this number by the total menu items. The

same calculation was used for the average per person lunch menu

spending. It is also noted that the average per person, while it includes

all available seating (including the bar area), it does not consider more

than one dish per person. Food sales also do not include consider-

ation of non-alcoholic sales.

Lunch alcohol sales are based on one house wine for every 4th per-

son, dinner alcohol sales are based on 1.25 glasses of house wine per

person. For the purpose of projections the price for a glass of house

wine was set at $8.95.

Season fluctuations in spending habits have also been incorporated

into the sales estimates based on conversations with other restaura-

teurs, and previous experience in Vancouver.

YEAR

lunch

dinner

2
1
lunch
dinner

3
lunch

dinner

dec

0.00

1.25

2.00

3.00

2.00
3.00

jan

0.25

0.50

0.75

1.00

0.75
1.00

feb

0.50
1.00
0.75
1.00
0.75
1.00

mar

0.75
1.00

0.90

1.75

0.90
1.75

apr

0.75
1.00
0.90
2.00
0.90
2.00

may

0.75

1.50

1.00
2.00
1.00
2.00

jun

1.00
2.00

1.20

2.25

1.20
2.25

jul

1.20
2.25
1.20
2.25
1.20
2.25

aug

1.20
2.00
1.20
2.00
1.20
2.00

sep

1.00
2.00
1.00
2.00
1.00
2.00

oct

1.00
2.00
1.00
2.00
1.00
2.00

nov

1.00
2.00
1.00
2.00
1.00
2.00

number oF daily SeatingS

2. coSt oF SaleS

Cost of sales is calculated using the estimated mark-up based on

food and alcohol retail price.

– Alcohol cost is estimated to be 40% of the retail price.

– Food cost is estimated to be 34% at dinner and 28% at lunch,

of the retail price.

3. labour coStS

Labour is calculated using the following monthly estimates:

No allowance has been made for wage inflation as the estimated

costs for year 1 are above the minimum wage rate in B.C. and the

staff will be supplementing their wages with gratuities.

Head

Chef

Kitchen Staff

Kitchen Support Staff

General Manager

Floor Manager

Serving Staff

Bar Staff

Total

1
4
3
1
1
5
2
17

3000

2200

1500

3000

2500

1700

1500
3000

8800

4500

3000
2500

9000

3000

33800

position employees rate total

4. overhead exPenSeS

The cost of the monthly overhead expenses is based on Man-

agement’s research of the actual market costs for these items

and by obtaining quotes from suppliers and other restaurants.

5. inveStor loanS

The loans from the investors have the following terms:

– Interest rate of 10% per annum.

– Interest is paid monthly based on the previous months

outstanding balance.

– Principal payments are paid in monthly payments of 1/24

of the original advance amount.

– Principal and interest payments are scheduled to begin June

2007, when projections show sufficient cash flow to begin re-

payment.

6. Start-uP and conStruction coStS

The start-up and construction costs are calculated by using es-

timates obtained from the Project Manager, trades people, furni-

ture suppliers and equipment suppliers. Management is confident

that these are a reasonable estimate of these costs.

A detailed list of the start-up and construction costs can be ob-

tained upon request. (mike_t@telus.net).

7. corPorate income taxeS

Corporations in BC are subject to income tax at a combined Fed-

eral and Provincial rate of 17% payable 3 months after the year-

end.

8. gSt & PSt

GST collected is remitted to Canada Revenue Agency, net of

GST paid on purchases on a monthly basis. The income and ex-

pense amounts shown are not including GST; however the net

GST collected is remitted in the following month.

PST is collected on Alcohol sales and is remitted to the Minister

of Revenue during the month.

NOTICE TO READER

I have prepared the accompanying financial projections to reflect the owner’s

current judgment as to the expected performance of CHOW Restaurant Corp.

based upon certain assumptions described in the preceding notes that form

part of the financial projections.

I have not audited, reviewed or otherwise attempted to verify the accuracy

or completeness of such information. Accordingly, readers are cautioned that

these statements may not be appropriate for their purposes.

Some assumptions inevitably will not materialize and unanticipated events and

circumstances may occur. Actual results during the period will vary from the

projected amounts and the variations may be material.

Although the assumptions used in the preparation of these projections were

considered reasonable at the time of preparation, there is no assurance that

these projections will be achieved in whole or in part.

Vancouver BC Evelyn Abbott

August 28, 2006 Chartered Management Accountant

Chow Restaurant

Appendix

Location Appendix 12.1

Views Appendix 12.2

Front View

Patio View

Renderings – Bar Area Appendix 12.3.a

east view

south view

west view

Renderings – Bar Area Appendix 12.3.a

Renderings – Dining Area Appendix 12.3.b

76
east view

north view

south view
Renderings – Dining Area Appendix 12.3.b

Architectural Floor Plans Appendix 12.4

11×17 insert

Competition – Map Appendix 12.5.a

Bin 942 & 941 (www.bin941.com, 1521 W Broadway & 941 Davie) – loud and
small, the BINS remain the original place for tapas dining.

Vij’s (www.vijs.ca, 1480 W 11th) – with an attention beyond detail, it ranks among
the finest Indian restaurants in the world.

Rangoli (www.vijsrangoli.ca, 1488 W 11th) – Vij’s more casual next door diner,
serving small Indian lunch and dinner menus for eating in and taking out.

CRU (www.cru.ca, 1459 W Broadway) – super trendy wine bar featuring colour
coded wine pairing guide.

West (www.westrestaurant.com, 2881 Granville St) – winner of several best of
awards, known for its outstanding local cuisine.

Lumière (www.lumiere.ca, 2551 W Broadway) – voted best French restaurant by
Vancouver Magazine for an unprecedented seven years, its commitment to excel-
lence is renowned.

Feenie’s (www.feenies.com, 2563 W Broadway) – Rob Feenie’s bright and relent-
lessly hip creation offers good value for good food.

Aurora Bistro (www.aurorabistro.ca, 2420 Main St.) – offers basic Canadian cui-
sine in a small comfortable neighbourhood setting.

Caffé Barney (2975 Granville St.) – a regular hang-out spot with friendly staff
serving average fare.

Ouisi Bistro (www.ouisibistro.com, 3014 Granville St.) – New Orleans themed res-
taurant serving Creole and Cajun cooking.

Bishops (www.bishopsonline.com, 2183 W Broadway) – contemporary North
American cuisine served in an intimate and very upscale room that is one of the city’s
most popular restaurants.

Competition – Listings Appendix 12.5.b

Neighbourhood Map Appendix 12.6

Postal Code Map Appendix 12.7

Menus – Dinner & After Dinner Appendix 12.8.a

Fish and Seafood

Smoked spring salmon “demi-cuit”
Yukon gold potatoes salad, grainy mustard, fresh grated horseradish and chive/soft boiled egg emulsion

Green curry scented “Salt spring island” mussel soup
Potatoes/ leeks/celery, turmeric, fresh cilantro leave and young coconut froth

Warm calamari salad
Ratatouille, shaved fennel, black olive puree, chorizo oil and Espellette pepper

Lightly grilled Albacore tuna
Savoy cabbage, house smoked bacon, brioche crouton and cream/mustard sauce

Sunvalley trout « a la Plancha »
Braised endive in red pepper juice/ olive oil, quinoa and organic baby shitake

Pan-seared scallops 10-20
Orzo “risotto” with rock shrimp, preserved lemon, kale and red pepper coulis

Meat and Poultry

Knife cut “AAA” beef tartar
Pickled cauliflower, chive/capers/parsley, black pepper “mignonette” and baguette on the grill

Buttermilk poach “Thomas Reid Farms” half chicken breast
Grilled Japanese eggplant puree, garbanzo bean salad with spicy marinated rapini, orange zest/cilantro/mint gremolata

Slow roasted “Berkshire” pork belly
Brine 12 hours (maple syrup, ginger, garlic), soy/pepper glaze, herb gnocchi with sautéed Swiss chard and sweet onion puree

Braised “Salt spring island” lamb shoulder
Warm lentil “du Puy” salad, vegetable brunoise, baby spinach, cumin infused yogurt and braising meat jus reduction

Pan seared Foie gras “Les Champs d’Elyse”
“Inspiration of the kitchen”

Grilled dry-aged “AAA” beef strip loin
Smooth potatoes puree, roasted cipollini onion / broccoli floret, broccoli latte and grain of paradise pepper/brown butter meat jus

Vegetarian and Others

Oven roasted butternut squash milk potage (Avalon dairy)
Grilled Spanish chorizo, aged cheddar cheese and rosemary oil

Organic “Glen valley farm” mix green salad
Honey/sherry vinegar dressing

Roasted/pickled organic baby beets salad
Shaved raw chiogga beets, fresh ricotta cheese, watercress with vin cotto vinegar and basil oil

House-made Okanagan goat cheese ravioli
Spaghetti squash in a tomato sauce, spinach puree, roasted pine nuts and basil froth

Grilled Trumpet Royal mushrooms
White corn polenta, almond/ parmesan crumbled, arugula and herb vinaigrette

Creamy “Carnaroli” risotto
Sauteed of wild and organic mushroom, fresh herb, parmesan cheese and caramelized onion broth emulsified with a egg yolk

13
14
14

13
15
16
19
24
26

9
12

13 -17

14
16

After Dinner

Selection of local and imported cheeses
Tasting portion 3pc

15$

Classic chocolate pot de crème
Maldon sea salt and ginger/almond biscotti

Cheesecake
Pear puree/pear jam and spice crumble

Lemon tart
Crystallized lemon-thyme, milk foam and wild honey

Roasted Golden pineapple
Mascarpone cheese, cilantro and coconut ice cream

Vanilla crème brulee
Chocolate ganache and cacao tuile

Affogato
Warm espresso over vanilla ice cream

Everything
7.50

Menus – Dinner & After Dinner Appendix 12.8.a

Butternut squash soup – grilled chorizo, aged cheddar cheese, and rosemary oil

Cauliflower soup – mix of mushrooms and truffle egg yolk

Mix green salad – honey and sherry vinaigrette

Roasted Portobello mushroom tart – eggplant caviar, goat cheese, and balsamic reduction

Beet, watercress and endivee salad – roasted almonds and herb vinaigrette

Arugula salad – fresh tomatoes, shaved parmesan, and vincotto vinegar

Smoked spring salmon – Yukon gold potato salad, grainy mustard, horseradish, and chive emulsion

Hand cut parpadelle – rapini, leeks, rock shrimps and lemon cream sauce

Mushroom risotto

Inspirations of the Kitchen

Market Fish

Meat of the day

9
10

11
11
13
14
15

Menus – Lunch Appendix 12.8.b

Menus – Bar Bites Appendix12.8.b

Spicy almonds

Smoked paprika/cayenne/salt/sugar

Pont-neuf potatoes

Yukon gold/herb mayonnaise

Marinated olives

Orange/lemon/garlic/thyme

Spanish chorizo

Medjool dates/vin cotto

Mushrooms bruschetta

Grilled bread/garlic/parsley/truffle oil

Chicken liver mousse

Marinated figs/warm brioche

Chow Fish and chips

Sablefish/soy/ginger/cilantro/taro root

Vincent Fraissange
E-mail: vfraissange@yahoo.com

Chef

Professional Profile

High-performance, resourceful professional • Diverse cooking experiences, gained by shoulder-to-shoulder association

with noted international and local chefs • Easily adapts to unique situations • Reputation for being easy-going and

friendly • Demonstrated ability to multi-task, and to work with speed and accuracy in stressful and high-pressure

settings • Team player who works harmoniously and cooperatively with coworkers • High standard of excellence,

never compromising on quality • Fluent in English and French • Core competencies include:

• Menu Planning • Meat, Poultry &Game • Egg and Breakfast Cookery
• Recipe Costing • Seafood Cooking • Time Management
• Food Sanitation & Safety • Stocks, Sauces & Soups • Presentation
• Kitchen Management • Cold Kitchen • Staff Supervision
• Stock Control • Baking Pastry & Desserts
• Vegetable & Starch Cookery (basic)

Professional Experience:

Sheraton Bora Bora Nui, French Polynesia

Junior sous-chef

LuMièRE RESTauRaNT, Vancouver, BC 2004 – Present

Lumiere Restaurant is an acclaimed French restaurant with a slight Asian influence • Relais Gourmand

• Les Grandes Tables du Monde, Traditions et Qualité • CAA Five Diamond Award • Vancouver
Magazine’s Best French Restaurant and Best Restaurant 1997 – 2002 and 2004 • America’s Top

Tables 1999 • Canadian Restaurant of the Year (Food and Hospitality Management) 1998.

Staff Resumes Appendix 12.9

Chef de Partie Entrementier

Station chef responsible for the organization, preparation and presentation of all vegetables,

starches and terrines. Charged with overseeing two food service employees, inventory

management, ordering supplies and participation in menu preparation.

• One of three chefs invited to participate in the preparation of lunch and dinner for 160 people at the 2004

Canada Day Celebrations hosted by the Canadian Consulate and presented at James Beard House in New

York City. Food preparation took place at Daniel Restaurant under the leadership of Chef Daniel Boulud.

• Participated in the organization and preparation of special events for up to 1500 people.

FEENiES RESTauRaNT, Vancouver, BC 2004

Feenies Restaurant is the casual dining cousin of Lumiere Restaurant. Invited to take a

temporary position as Chef Tourneau while waiting for an opening at Lumiere.

Chef Tourneau
Rotated through all kitchen stations as necessary.

LE CROCODiLE RESTauRaNT, Vancouver, BC 2001 – 2004

Le Crocodile is an award winning French restaurant with a distinct Alsatian influence •

CAA 4 Diamond Rating 1999 – 2005 • Vancouver Magazine’s Best French Restaurant

1991, 1994, 1998 • America’s Top Tables 1998 • Enroute’s Top 100 restaurants.

Chef de Partie (2003 – 2004)

Developed skill sets as station chef for Chef de Partie Garde Manger — preparation of cold appetizers, terrines, cold

sauces, salads; and as Chef de Partie, Entremetier — preparation of vegetables, starches and terrines. Responsibilities

included supervising 2 kitchen staff, maintaining balanced inventory, preparing and presenting menu items.

• In celebration of Le Crocodile’s 20th Anniversary, worked with Emile Jeung (3 star

Michelin Chef and owner at Au Crocodile in Strasbourg, France) for two weeks.

apprentice (2001 – 2003)

Completed 8100 documented hours of work training, assisting in culinary preparations at all work

stations. Achieved ITA Certificate of Qualification (Cook) and promoted to full-time Chef position.

88
Staff Resumes Appendix 12.9

BiSTRO PaSTiS, Vancouver, BC 2002 – 2003

Voted Vancouver Magazine’s Best Bistro 4 years running (2001 – 2004)

Daytime Sous-Chef

Responsible for daytime kitchen operation including food preparation and kitchen staff supervision.

SaNDBaR RESTauRaNT, Vancouver, BC 2001

Grill Station Chef

Grill preparation for 300-seat fresh seafood and fish restaurant.

Professional Training

ITA CERTIFICATE OF QuALIFICATION (Cook), Vancouver, BC 2004

INTER-PROVINCIAL RED SEAL ENDORSEMENT (Cook), Vancouver, BC 2004

Completion of 360 hours of in-school technical training

and 8100 documented hours of directly related work experience.

ITA CERTIFICATE OF APPRENTICESHIP (Cook), Vancouver, BC 2001 – 2002

Volunteer activities

SILENT AuCTION FuND RAISER, Vancouver, BC 2004

Helped organize and run silent auction to raise funds enabling a young chef to travel to

Spain and train at a 3 Star Michelin Restaurant. The auction raised $20,000.

Languages

Completely fluent in English and French.

Citizenship

Canadian and French Citizenship.

Staff Resumes Appendix 12.9

RESTAURANT EXPERIENCE
CURRENT – SALT TASTING ROOM
SERVER SPECIALIZING IN ARTISINAL MEATS, CHEESES, AND WINES.

05.06 – 08.06 NU RESTAURANT
HEAD BARTENDER
RESPONSIBLE FOR THE ORGANIZATION AND MAINTENANCE OF ALL BAR RELATED SYSTEMS. INVENTORY AND
ORDERING. SPECIALIZING IN PRE-PROHIBTION COCKTAILS.

05.05 – 05.06 SUGAR AND SUGAR
BAR MANAGER
WORKING WITH A DIFFERENT CLIENTELE, VARYING BAR SETUPS, AND A CHANGING COCKTAIL MENU FOR
EVERY EVENT.

7.03 – 09.03 FEENIES
HEAD BARTENDER
HIGH VOLUME IN A CASUAL/FINE DINING ENVIRONMENT. SPECIALIZING IN PRE-PROHIBTION COCKTAILS AND
SMALL PRODUCTION BC WINES. INVENTORY AND ORDERING. TRAINING BAR STAFF ON ESPRESSO DRINKS.

10.97 – 12.02 SUBEEZ CAFÉ
BAR MANAGER
EXTREMELY HIGH VOLUME OF COCKTAILS AND ESPRESSO DRINKS. 20 SEAT WOOD, 250 SEAT DINING ROOM.
DESIGNING EFFICIENT OPERATING SYSTEMS FROM THE GROUND UP. CREATING A RECIPE BOOK AND
TRAINING PROGRAM THAT ENSURED CONSISTENT PRODUCT FROM ALL BARTENDERS. WRITING AN
INNOVATIVE AND INTERESTING COCKTAIL MENU. INVENTORY AND INVOICES. ORDERING. EQUIPMENT
MAINTENANCE.

RESTAURANT EXPERIENCE
06.95 – 10.95 REBAR MODERN FOODS
BARTENDER
EXTENSIVE LIST OF JUICE DRINKS. SPECIALIZING IN ORGANIC FOODS, SUPPLEMENTS AND UNDERSTANDING
THEIR HEALTH BENEFITS. ESPRESSO DRINKS.

02.94 – 10.94 STARBUCKS COFFEE COMPANY
BARISTA
RECIPIENT OF BRAVO BEAN AWARD FOR ADVANCED UNDERSTANDING AND INITIATIVE IN EQUIPMENT
MAINTENANCE AND REPAIR.

WORK EXPERIENCE

1992 – PRESENT FREELANCE GRAPHIC DESIGNER

EDUCATION
2000-04 CONTINUING STUDIES IN PRINT DESIGN – ECIAD
1998-99 PHOTOGRAPHY PROGRAM – LANGARA COLLEGE
1990-92 UNDERGRADUATE STUDIES PHILOSOPHY – UVIC

REFERENCES
JASON SUGAR – SUGAR AND SUGAR 604.619.3504
JEFF PARKER – SUBEEZ CAFÉ 778.229.8292
CHARLES FORSBERG – PARKSIDE 778.995.1251

CURRENT AS OF AUGUST 15, 2006

christopherflett

Staff Resumes Appendix 12.9

MICHAEL ZIFF

WORK EXPERIENCE

Jul ’04 – Jan ’06 Chambar Restaurant, Vancouver
Sommelier / Service Manager

– created wine list and wine program
– established service style

Oct ‘96 – May ‘00 La Rua Restaurante, Whistler
Server
– fine dining Mediterranean/West Coast fusion

– voted Whistler’s #1 restaurant for service/cuisine for 4 years

Sep ‘94 – Sep ‘96 The Alabaster Restaurant, Vancouver
General Manager
– all front of the house operations and service
– creating and updating wine list, control of beverage

Jan ‘92 – May ‘94 The Metropolis Cafe, New York City
Beverage Manager
– floor manager/maitre d’
– creating/updating wine list, control and inventory of beverage
– bi-monthly wine seminars/tastings to educate the staff

Aug ‘91 – Jan’92 Hudson Bar and Books, New York City
General Manager
– bartender
– control, inventory and ordering of wine and liquor

Jul ‘89 – Jul ‘91 DiSalvio’s, Montreal
Bartender
– one of Montreal’s busiest and popular nightclubs

Mar ‘90 – Jan ‘91 L.C.C./Clos des Vignes, Montreal
Wine Sales and Marketing
– promotion of wines to hotels and restaurants
– organizing promotional activity
– create exposure for over 100 products in Quebec liquor stores

Aug ‘88 – Nov ‘88 Auberge du Pommier, Toronto
Wine Steward, Assistant Manager
– educate staff about wine to boost wine sales
– inventory and costing of beverage

Staff Resumes Appendix 12.9

Aug ‘86 – Jan ‘88 Oliver’s Bistro, Toronto
Assistant Manager
– responsible for beverage control, wine list and wine service
– also fulfilled all duties as manager/maitre d’

Jan ‘86 – Aug ‘86 Les Martins, Toronto
Server
– fine dinning French Restaurant
– trained in proper service of caviar and cigars

Sep ‘85 – Jan ‘86 Windsor Arms Hotel, Toronto
Server, Courtyard Café
– high volume, high profile restaurant
– one of the best wine lists in Canada

OTHER EXPERIENCE

’02 – present Twice Shy Design Inc. – Owner and Founder of successful clothing brand producing adult and children’s
wear.

’00 – present Soup Productions – various types of production (and conception) of spoken word events, still shoots,
parties and club nights

’97 -’98 -’99 -’00 – ‘01 AMProductions (with partner Ace Mackay-Smith) – produced the closing party at the
World Ski and Snowboard Festival – entertaining over 9000 people with world class DJs,
performance artists, drummers and artists – the event is booked again in 2002

’00 – ’01 AMProductions (with partner Ace Mackay-Smith) – co-produced (with RCG) the
entertainment factor or the World Championship Big Air Competition at the WSSF (with
over 15 000 people in attendance both years) –

EDUCATION

University of Windsor – English / Creative Writing

American Sommelier Society (Humber College) – 1 year wine course

LANGUAGES

French and English fluently, casual knowledge of Italian

92
Staff Resumes Appendix 12.9

Organizational Chart Appendix 12.10

Christopher Flett Michael Ziff FinancialController
Vincent

Fraissange
Mike Thomson

General Manager

JC Poirier

Chef

Barman 1 Head Server Office Assistant Cook 1

Server 2 Cook 2Book Keeper

Cook 3

Dishwasher

Server 3

Server 4

Busser

Food Runner

Barman 2

Bar Back

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11-1

Cost-Volume-Profit

Prepared by

Coby Harmon

University of California, Santa Barbara

Westmont College

WILEY

Kimmel ● Weygandt ● Kieso

Survey of Accounting, First Edition

11-2

CHAPTER OUTLINE

Explain variable, fixed, and mixed costs

and the relevant range.1

LEARNING OBJECTIVES

Apply the high-low method to determine the components of mixed

costs.2

Prepare a CVP income statement to determine contribution margin.3

Compute the break-even point using three approaches.4

Determine the sales required to earn target net income and determine

margin of safety.5

11-3

Cost Behavior Analysis is the study of how specific costs

respond to changes in the level of business

activity.

 Some costs change; others remain the same.

 Helps management plan operations and decide between

alternative courses of action.

 Applies to all types of businesses and entities.

 Starting point is measuring key business activities.

LO 1

LEARNING

OBJECTIVE

Explain variable, fixed, and mixed costs

and the relevant range.1

11-4

Cost Behavior Analysis is the study of how specific costs
respond to changes in the level of business activity.

 Activity levels may be expressed in terms of:

► Sales dollars (in a retail company)

► Miles driven (in a trucking company)

► Room occupancy (in a hotel)

► Dance classes taught (by a dance studio)

 Many companies use more than one measurement base.

Cost Behavior Analysis

LO 1

11-5

Cost Behavior Analysis is the study of how specific costs
respond to changes in the level of business activity.

 Changes in the level or volume of activity should be

correlated with changes in costs.

 Activity level selected is called activity or volume index.

 Activity index:

► Identifies the activity that causes changes in the

behavior of costs.

► Allows costs to be classified as variable, fixed, or mixed.

Cost Behavior Analysis

LO 1 11-6

 Costs that vary in total directly and proportionately with

changes

in the activity level.

► Example: If the activity level increases 10 percent, total

variable costs increase 10 percent.

► Example: If the activity level decreases by 25 percent,

total variable costs decrease by 25 percent.

 Variable costs remain the same per unit at every level of

activity.

VARIABLE COSTS

LO 1

11-7

Illustration: Damon Company manufactures tablet computers that

contain a $10 camera. The activity index is the number of

tablets produced. As Damon

manufactures each tablet, the total cost

of the cameras used increases by $10.

As part (a) of ILLUSTRATION 11-1

shows, total cost of the cameras will be

$20,000 if Damon produces 2,000

tablets, and $100,000 when it produces

10,000 tablets. We also can see that a

variable cost remains the same per unit

as the level of activity changes.

ILLUSTRATION 11-1
Behavior of total and

unit variable costs

LO 1

VARIABLE COSTS

11-8

Illustration: Damon Company manufactures tablet computers that
contain a $10 camera. The activity index is the number of
tablets produced. As Damon
manufactures each tablet, the total cost
of the cameras used increases by $10.

As part (b) of ILLUSTRATION 11-1

shows, the unit cost of $10 for the

camera is the same whether Damon

produces 2,000 or 10,000 tablets.

LO 1
VARIABLE COSTS
ILLUSTRATION 11-1
Behavior of total and
unit variable costs

11-9

ILLUSTRATION 11-1

Behavior of total and unit variable costs

LO 1
VARIABLE COSTS

11-10

 Costs that remain the same in total regardless of

changes in the activity level within a relevant range.

 Fixed cost per unit cost varies inversely with activity:

As volume increases, unit cost declines, and vice versa

 Examples:

► Property taxes

► Insurance

► Rent

► Depreciation on buildings and equipment

FIXED COSTS

LO 1

11-11

Illustration: Damon Company leases its productive facilities at a cost

of $10,000 per month. Total

fixed costs

of the

facilities will remain constant at every

level of activity, as part (a) of

ILLUSTRATION 11-2 shows.

LO 1
FIXED COSTS

ILLUSTRATION 11-2

Behavior of total and unit

fixed costs
11-12

Illustration: Damon Company leases its productive facilities at a cost
of $10,000 per month. Total fixed costs of the
facilities will remain constant at every

level of activity. But, on a per unit basis,

the cost of rent will decline as activity

increases, as part (b) of ILLUSTRATION

11-2 shows. At 2,000 units, the unit cost

per tablet computer is $5 ($10,000

2,000). When Damon produces 10,000

tablets, the unit cost of the rent is only $1

per tablet ($10,000 ÷ 10,000).

LO 1
FIXED COSTS
ILLUSTRATION 11-2
Behavior of total and unit
fixed costs

11-13

ILLUSTRATION 11-2

Behavior of total and unit fixed costs

LO 1
FIXED COSTS

11-14

Variable costs are costs that:

a. Vary in total directly and proportionately with changes

in the activity level.

b. Remain the same per unit at every activity level.

c. Neither of the above.

d. Both (a) and (b) above.

Question

LO 1
FIXED COSTS

11-15 LO 1 11-16

 Throughout the range of possible levels of activity, a

straight-line relationship usually does not exist for either

variable costs or fixed costs.

 Relationship between variable costs and changes in

activity level is often

curvilinear.

RELEVANT RANGE

 For fixed costs, the relationship

is also nonlinear – some fixed

costs will not change over the

entire range of activities, while

other fixed costs may change.

LO 1

11-17

ILLUSTRATION 11-3
Nonlinear behavior of variable and fixed costs

LO 1

RELEVANT RANGE

11-18

Range of activity over which a company expects to

operate during a year. ILLUSTRATION 11-4
Linear behavior within

relevant range

LO 1
RELEVANT RANGE

11-19

The relevant range is:

a. The range of activity in which variable costs will be

curvilinear.

b. The range of activity in which fixed costs will be

curvilinear.

c. The range over which the company expects to operate

during a year.

d. Usually from zero to 100% of operating capacity.

Question
LO 1
RELEVANT RANGE

11-20

 Costs that have both a variable element and a fixed

element.

 Change in total but not proportionately with changes

in activity level.

MIXED COSTS

ILLUSTRATION 11-5
Behavior of a mixed cost

LO 1

11-21

Helena Company, reports the following total costs at two

levels of production.

Classify each cost as variable, fixed, or mixed.

Variable

Fixed

Mixed

LO 1

DO IT! 1 Types of

Costs

11-22

HIGH-LOW METHOD

 High-Low Method uses the total costs incurred at the

high and the low levels of activity to classify mixed costs

into fixed and variable components.

 The difference in costs between the high and low levels

represents variable costs, since only variable-cost

element can change as activity levels change.

LO 2

LEARNING
OBJECTIVE

Apply the high-low method to determine the

components of mixed costs.2

11-23

STEP 1: Determine variable cost per unit using the following

formula:

HIGH-LOW METHOD

ILLUSTRATION 11-6
Formula for variable cost per unit using high-low method

LO 2 11-24

Illustration: Metro Transit Company has the

following maintenance costs and mileage data for

its fleet of buses over a 6-month period.

Change in Costs (63,000 – 30,000) $33,000

High minus Low (50,000 – 20,000) 30,000

$1.10
cost per

unit

HIGH-LOW METHOD

ILLUSTRATION 11-7
Assumed maintenance

costs and mileage data

LO 2

11-25

STEP 2: Determine the fixed cost by subtracting the total variable

cost at either the high or the low activity level from the total cost at

that activity level.

HIGH-LOW METHOD

ILLUSTRATION 11-8
High-low method computation of fixed costs

LO 2 11-26

Maintenance costs are therefore $8,000 per month of fixed costs

plus $1.10 per mile of variable costs. This is represented by the

following formula:

Maintenance costs = $8,000 + ($1.10 x Miles driven)

Example: At 45,000 miles, estimated maintenance costs would

be:

Fixed $ 8,000

Variable ($1.10 x 45,000) 49,500

$57,500

HIGH-LOW METHOD
LO 2

11-27

ILLUSTRATION 11-9
Scatter plot for Metro

Transit Company

HIGH-LOW METHOD

LO 2 11-28

Mixed costs consist of a:

a. Variable cost element and a fixed cost element.

b. Fixed cost element and a controllable cost element.

c. Relevant cost element and a controllable cost

element.

d. Variable cost element and a relevant cost element.

Question
HIGH-LOW METHOD
LO 2

11-29 LO 2 11-30

Byrnes Company accumulates the following data concerning a

mixed cost, using units produced as the activity level.

(a) Compute the variable- and fixed-cost elements using the high

–

low method.

(b) Estimate the total cost if the company produces 8,000

units.

LO 2

DO IT! 2 High-Low Method

11-31

(a) Compute the variable and fixed cost elements using the high-

low method.

Variable cost: ($14,740 – $11,100) / (9,800 – 7,000) = $1.30 per unit

Fixed cost: $14,740 – $12,740 ($1.30 x 9,800 units) = $2,000

or $11,100 – $9,100 ($1.30 x 7,000) = $2,000

LO 2

DO IT! 2 High-Low Method

11-32

(b) Estimate the total cost if the company produces 8,000 units.

Total cost (8,000 units):

$2,000 + $10,400 ($1.30 x 8,000) = $12,400

LO 2
DO IT! 2 High-Low Method

11-33

Cost-volume-profit (CVP) analysis is the study of the

effects of changes in costs and volume on a company’s

profits.

 Important in profit planning.

 Critical factor in management decisions as

► Setting selling prices,

► Determining product mix, and

► Maximizing use of production facilities.

LO 3

LEARNING
OBJECTIVE

Prepare a CVP income statement to

determine contribution margin. 3

11-34

BASIC COMPONENTS

Cost-Volume-Profit Analysis

ILLUSTRATION 11-10
Components of CVP analysis

LO 3

11-35

Assumptions

1. Behavior of both costs and revenues is linear throughout

the relevant range of the activity index.

2. Costs can be classified accurately as either variable or

fixed.

3. Changes in activity are the only factors that affect costs.

4. All units produced are sold.

5. When more than one type of product is sold, the sales mix

will remain constant.

BASIC COMPONENTS

LO 3 11-36

Which of the following is not involved in CVP analysis?

a. Sales mix.

b. Unit selling prices.

c. Fixed costs per unit.

d. Volume or level of activity.

Question
BASIC COMPONENTS
LO 3

11-37

 A statement for internal use.

 Classifies costs and expenses as fixed or variable.

 Reports contribution margin in the body of the

statement.

► Contribution margin – amount of revenue remaining

after deducting variable costs.

 Reports the same net income as a traditional income

statement.

CVP INCOME STATEMENT

Cost-Volume-Profit Analysis

LO 3 11-38

Illustration: Vargo Video Company produces a high-definition

digital camcorder. Relevant data for the camcorders sold by

this company in June 2017 are as follows.

CVP INCOME STATEMENT

ILLUSTRATION 11-11
Assumed selling and cost data for Vargo Video

LO 3

11-39

Illustration: The CVP income statement for Vargo Video

therefore would be reported as follows.

CVP INCOME STATEMENT

ILLUSTRATION 11-12
CVP income statement, with net income

LO 3 11-40

 Contribution margin is available to cover fixed costs and

to contribute to

income.

 Formula for contribution margin per unit and the

computation for Vargo Video are:

Unit Contribution Margin

CVP INCOME STATEMENT

ILLUSTRATION 11-13
Formula for unit contribution margin

LO 3

11-41

Vargo’s CVP income statement assuming a

zero net income.

CVP INCOME STATEMENT
LO 3
Unit Contribution Margin

ILLUSTRATION 11-14
CVP income statement,

with zero net income

11-42

Assume that Vargo sold one more camcorder,

for a total of 1,001 camcorders sold.

CVP INCOME STATEMENT
LO 3
Unit Contribution Margin

ILLUSTRATION 11-15
CVP income statement, with

net income and per unit data

11-43

 Shows the percentage of each sales dollar available

to apply toward fixed costs and profits.

 Formula for contribution margin ratio and the

computation for Vargo Video are:

ILLUSTRATION 11-17
Formula for contribution margin ratio

Contribution Margin Ratio

CVP INCOME STATEMENT

LO 3 11-44

ILLUSTRATION 11-16
CVP income statement, with net income and percent of sales data

CVP INCOME STATEMENT
LO 3
Contribution Margin Ratio

11-45

Assume Vargo Video’s current sales are $500,000 and it wants to

know the effect of a $100,000 (200-unit) increase in sales.

ILLUSTRATION 11-18
Comparative CVP income statements

CVP INCOME STATEMENT
LO 3
Contribution Margin Ratio

11-46

Contribution margin:

a. Is revenue remaining after deducting variable costs.

b. May be expressed as contribution margin per unit.

c. Is selling price less cost of goods sold.

d. Both (a) and (b) above.
Question
CVP INCOME STATEMENT
LO 3

11-47

Ampco Industries produces and sells a cell phone-operated

thermostat. Information regarding the costs and sales of

thermostats during September 2017 are provided below.

Unit selling price of thermostat $85

Unit variable costs $32

Total monthly fixed costs $190,000

Units sold 4,000

Prepare a CVP income statement for Ampco Industries for the

month of September. Provide per unit values and total values.

LO 3

DO IT! 3 CVP Income Statement

11-48

Prepare a CVP income statement for Ampco Industries for the
month of September. Provide per unit values and total values.
LO 3
DO IT! 3 CVP Income Statement

11-49

 Process of finding the break-even point level of activity

at which total revenues equal total costs (both fixed and

variable).

 Can be computed or derived

► from a mathematical equation,

► by using contribution margin, or

► from a cost-volume profit

(CVP) graph.

 Expressed either in sales units or in sales dollars.

Break-Even Analysis

LO 4

LEARNING
OBJECTIVE

Compute the break-even point using three

approaches. 4

11-50

ILLUSTRATION 11-20

Computation

of break-

even point in

units.

Break-even occurs where total sales equal variable costs

plus fixed costs; i.e., net income is zero

MATHEMATICAL EQUATION

LO 4

11-51

 At the break-even point, contribution margin must equal

total fixed costs

(CM = total revenue – variable costs)

 Break-even point can be computed using either

contribution margin per unit or contribution margin ratio.

CONTRIBUTION MARGIN TECHNIQUE

LO 4 11-52

 When the break-even-point in units is desired,

contribution margin per unit is used in the following

formula which shows the computation for Vargo Video:

ILLUSTRATION 11-21

Formula for break-even point in units using unit contribution margin

Contribution Margin In Units

LO 4
CONTRIBUTION MARGIN TECHNIQUE

11-53

 When the break-even-point in dollars is desired,

contribution margin ratio is used in the following

formula which shows the computation for Vargo Video:

Contribution Margin Ratio

ILLUSTRATION 11-22
Formula for break-even point in dollars using contribution margin ratio

LO 4
CONTRIBUTION MARGIN TECHNIQUE

11-54 LO 4

11-55

Because this

graph also shows

costs, volume, and

profits, it is

referred to as a

cost-volume-profit

(CVP) graph.

ILLUSTRATION 11-23

CVP graph

GRAPHIC PRESENTATION

LO 4 11-56

Gossen Company is planning to sell 200,000 pliers for $4

per unit. The contribution margin ratio is 25%. If Gossen

will break even at this level of sales, what are the fixed

costs?

a. $100,000.

b. $160,000.

c. $200,000.

d. $300,000.

Question
Break-Even Analysis
LO 4

11-57

1,125 units

Lombardi Company has a unit selling price of $400, variable

costs per unit of $240, and fixed costs of $180,000. Compute

the break-even point in units using (a) a mathematical equation

and (b) contribution margin per unit.

$400Q $240Q $180,000 0

$160Q $180,000

–
–
=

– =

ILLUSTRATION 11-19

Sales
Variable

Costs

Fixed

Costs

Net

Income
– – =

LO 4

DO IT! 4 Break-Even Analysis

11-58

1,125 units$180,000 $160 =

ILLUSTRATION 11-21
Lombardi Company has a unit selling price of $400, variable
costs per unit of $240, and fixed costs of $180,000. Compute

the break-even point in units using (a) a mathematical equation

and (b) contribution margin per unit.
Fixed

Costs
Contribution

Margin per Unit

Break-Even

Point in Units
÷ =

÷
LO 4
DO IT! 4 Break-Even Analysis

11-59

 Level of sales necessary to achieve a specified

income.

 Can be determined from each of the approaches used

to determine break-even sales/units:

► from a mathematical equation,

► by using contribution margin technique, or

► from a cost-volume profit (CVP) graph.

 Expressed either in sales units or in sales dollars.

TARGET NET INCOME

LO 5

LEARNING
OBJECTIVE

Determine the sales required to earn target

net income and determine margin of safety. 5

11-60

Mathematical Equation

Formula for required sales to meet target net income.

TARGET NET INCOME

LO 5

ILLUSTRATION 11-24
Formula for required sales to meet target net income

11-61

Using the formula for the break-even point, simply include the

desired net income as a factor. ILLUSTRATION 11-25
Computation of required sales

LO 5
Mathematical Equation
TARGET NET INCOME

11-62

To determine the required sales in units for Vargo Video:

Contribution Margin Technique

ILLUSTRATION 11-26
Formula for required sales in units using unit contribution margin

LO 5
TARGET NET INCOME

11-63

To determine the required sales in dollars for Vargo Video:

ILLUSTRATION 11-27
Formula for required sales in dollars using contribution margin ratio

LO 5
TARGET NET INCOME
Contribution Margin Technique

11-64

Suppose Vargo Video

sells 1,400 camcorders.

ILLUSTRATION 11-23

shows that a vertical line

drawn at 1,400 units

intersects the sales line at

$700,000 and the total

cost line at $620,000. The

difference between the

two amounts represents

the net income (profit) of

$80,000.

ILLUSTRATION 11-23

Graphic

Presentation

LO 5
TARGET NET INCOME

11-65

The mathematical equation for computing required sales to

obtain target net income is:

Required sales =

a. Variable costs + Target net income.

b. Variable costs + Fixed costs + Target net income.

c. Fixed costs + Target net income.

d. No correct answer is given.

Question
LO 5
TARGET NET INCOME

11-66

 Difference between actual or expected sales and sales at

the break-even point.

 Measures the “cushion” that a particular level of sales

provides.

 May be expressed in dollars or as a ratio.

 Assuming actual/expected sales are $750,000:

MARGIN OF SAFETY

ILLUSTRATION 11-28
Formula for margin of safety in dollars

LO 5

11-67

 Computed by dividing the margin of safety in dollars by

the actual (or expected) sales.

 Assuming actual/expected sales are $750,000: ILLUSTRATION 11-29
Formula for margin of

safety ratio

 The higher the dollars or percentage, the greater the

margin of safety.

Margin of Safety Ratio

LO 5 11-68

Marshall Company had actual sales of $600,000 when break-

even sales were $420,000. What is the margin of safety ratio?

a. 25%.

b. 30%.

c. 33 1/3%.

d. 45%.

Question
MARGIN OF SAFETY
LO 5

11-69 LO 5 11-70

Zootsuit Inc. makes travel bags that sell for $56 each. For the

coming year, management expects fixed costs to total

$320,000 and variable costs to be $42 per unit. Compute the

following:

a) break-even point in dollars using the contribution margin

(CM) ratio;

b) the margin of safety and margin of safety ratio assuming

actual sales are $1,382,400; and

c) the sales dollars required to earn net income of

$410,000.

Comprehensive

LO 5

DO IT! 5
Break-Even, Margin of Safety, and

Target Net Income

11-71

Comprehensive
Zootsuit Inc. makes travel bags that sell for $56 each. For the
coming year, management expects fixed costs to total

$320,000 and variable costs to be $42 per unit. Compute

break-even point in dollars using the contribution margin (CM)

ratio.

Contribution margin ratio = [($56 – $42) ÷ $56] = 25%

Break-even sales in dollars = $320,000 ÷ 25% = $1,280,000

LO 5
DO IT! 5
Break-Even, Margin of Safety, and

Target Net Income

11-72

Margin of safety = $1,382,400 – $1,280,000 = $102,400

Margin of safety ratio = $102,400 ÷ $1,382,400 = 7.4%

ComprehensiveComprehensive

Zootsuit Inc. makes travel bags that sell for $56 each. For the
coming year, management expects fixed costs to total
$320,000 and variable costs to be $42 per unit. Compute the

margin of safety and margin of safety ratio assuming actual

sales are $1,382,400.

LO 5
DO IT! 5
Break-Even, Margin of Safety, and
Target Net Income

11-73

Required sales in dollars =

($320,000 + $410,000) ÷ 25% = $2,920,000

ComprehensiveComprehensive
Zootsuit Inc. makes travel bags that sell for $56 each. For the
coming year, management expects fixed costs to total
$320,000 and variable costs to be $42 per unit. Compute the

sales dollars required to earn net income of $410,000.

LO 5
DO IT! 5
Break-Even, Margin of Safety, and
Target Net Income

11-74

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