Professor Elam

One of the objectives of the blog is to get students accustomed to thinking in acconting terms.  An incident at a Mexican Restaurant this weekend ilustrates features of all three accounting classes I am teaching this semester. 

Simply, three of  us were having lunch outside at  Mexican restaurant in Austin, Tx.  My friend wanted to be outside as she smokes.  Since however this was Austin, the watiress was forbidden by law to bring either matches or an ashtray!  When my friend inquired what to do with the ashes, the hostess  replied, just put them on the floor, we wash it off with the hose every day!  Austin is weird…

Anyway, the waiter finally  came to the table. He did not write down the order which included a queso appetizer.  And we never got it.  This demonstrates a several things about managing a business and how a study of accounting could improve it.

In Intermediate I we will study Internal Control Systems. IC assures that things happen if all controls are in place and working.  In Auditing we will study the concept of performance and operational auditing, do systems function properly to achieve maximum results?  Since the waiter did not write the order down, the entire order did not get to the kitchen.  Therefore proper IC controls, write down the order, were not working .  So, no big deal you say?  Well I admit I didn’t need the calories but what did it mean for the restaurant?  How many appetizers are missed in say a month’s time when IC controls fail?

We will study the contribution margin approach to cost analysis in Managerial Accounting . Simply put, sales price less variable cost equals contribution margin CM.  CM divided by Fixed Cost will determine the number of meals or dollar amount to break even.  So what did the restaurant lose?  If they queso sold for say $4 (it did) and it cost say $1, the CM would have been $3.  How often does the waiter miss part of the order in that maner, we don’t know.  That would require more visits or observation to determine.  Let’s say he misses appetizers in one of four orders. If there are a total of 50 tables per day that would be about 12 appetizers  x $3 = $480  missed times 30 days or 480 x $3 = $1,440 contribution margin lost per month.  Gee things are starting to add up here!  In addition to the lost revenue, we have the issue of customer satisfaction, an operational consideration.  That would include the concept of Total of Continuous Quality Management pioneered by Dr. Edward Deming.  So one lost order can mean bigger lost bucks as well as operational failure.  Customers don’t complain, they switch.   Quality is the adherence to a standard.  The standard here is that what is ordered should be delivered.  Failure to write down the order results in undelievered goods. 

This is another example of how studying accounting can improve business results!