Comprehensive Project Costing
Restaurants offer a variety of menu items which have different sizes, ingredients, packaging, and demand. In addition, made-to-order restaurants go one step further and may have different renditions of the same menu items based on how a customer orders them. Take for example, Chipotle, for the same price, steak tacos could be “crispy” or “soft”, may have white, brown, or no rice, may or may not contain one of three types of salsa, could have cheese or sour cream or neither, and may or may not have lettuce, black or pinto beans, or other vegetables. Combinations for that one menu item are virtually endless!
Profit margins in the restaurant industry are small, and operating costs are high. Good product costing is essential for survival in the business. This project option will allow you to apply your knowledge of product costing to the restaurant industry.
- Select a nationally recognized fast casual restaurant chain that offers made-to-order menu items, FILLER TEXT in your computations which data is taken from publicly available information (provide the sources) and which data has been generated by you.
- Choose 3 menu items from the menu of the restaurant. Familiarize yourself with the products including the ingredients, processing method, general selling price in your area, packaging requirements, and accessories (straw, sweetener, fork/knife, condiments, etc.). In Module 3, you will be submitting this information as part of your Portfolio Project milestone.
- From the cost information you were able to find or generated on your own, provide responses in Microsoft Excel to the following questions. Reference your calculations to show tracing where numbers come from. (For assistance with Microsoft Excel, please refer to Lynda.com for tutorials.)
- Compute the cost of each product under the simple/traditional costing method. For period costs, use direct labor hours.
- Compute the net operating profit margin of each product using the simple/traditional costing method.
- Compute the total overhead and period cost allocation under activity-based costing (ABC) assumptions for each product.
- Compute the per unit ABC cost of each product.
- Compute the net profit margin of each product using the ABC costing method.
- Compare the net profit margin of the products under the simple/traditional cost assignment and the ABC assignment for each product. Evaluate the difference.
- In a Microsoft Word document, write an accompanying memo explaining to the CEO what the costing methods are, the differences between the methods, and which method seems to make sense in this scenario. Also include the pros and cons of the method you are recommending, and why you feel the pros outweigh the cons.