Marketing Case Study

Answer the following questions based on the standard cost control formulas presented this chapter.  I recommend that you print out the power point notes and the formula review to use when completing this assignment. Be sure to show all of your work for these calculations. It is okay to write this by hand and upload a screen shot of your work. 

1.      John runs a small family restaurant in Lowell.  He is currently utilizing the 5 standard cost control tools in managing his business.  His clam chowder recipe currently has a yield of 100 portions.  He anticipates a busy weekend and needs to make enough to serve 330 guests, what should he do? 

 Calculate how he will make this adjustment.  

ANSWER

Desired yield / original yield = adjustment factor

Desired yield =330

Original yield =100

330 / 100=3.3

            Adjustment factor =3.3

2.      The total ingredients cost for 100 portions of clam chowder is $150.00.  What is the portion cost? 

ANSWER

Total ingredients cost / number of portion = standard portion cost

                 $ 150 / 100= $1.5

                  =$1.5

               Portion cost =$1.5

3.      If he makes 330 portions, what is the new portion cost? 

ANSWER

Let new amount be (X )

So,

            Original amount * adjustment factor =new amount

                  330*$1.5=$450

                            =$450

4.      John wants to have his food cost for the clam chowder be 33% of its selling price.  What should he charge for his clam chowder?

ANSWER

Desired food cost = items standard cost / Desired food cost percent

$ 1.5 / 0.33

  =$4.55

If the items cost him $1.5 then he needs to charge at least $4.55

5.      Based on the selling price that you calculated above, what is the contribution margin for the clam chowder? 

ANSWER

Contribution margins =sales price – food cost

=$4.5 - $1.5

=$3.0

This is what is left after paying for food cost what is left over to contribute to all other cost

6.      Sales information for John’s restaurant is as follows: 

      Forecasted revenue:   $12,500
      Non food expenses:  $6,000
      Required profit:  $3,500
      What are John’s allowable food costs for the week? 

ANSWER

Allowable food cost = Forecasted revenue –non food expenses –required profit

 =$12,500-$6,000-$3500

 =$3000

Allowable food cost = $3000

7.      What is John’s food cost % based on the calculations above? 

ANSWER

Food cost percent = Allowable food cost / Forecasted Revenue

=$ 3000 / $ 12500

=0.24%

8.      Do you think that food cost is attainable? 

Answer

Yes, it is attainable. Since the percentage of sales income spent on food ingredients is favorable. John should further lower his adjustment factor to a lower rate by rationalizing the recipe.

9.      What recommendations do you have for John? 

Answers

John should continue lowering the cost of food so as to increase his net profit base and further lower his adjustment factor to a lower rate by rationalizing the recipe.

Formula Review 

5 Standard Cost Control Tools: 

Standard purchase specifications

Standard Recipes

Standard Yield

Standard Portion Size

Standard Portion Cost

1. Adjustment Factor:  Used to adjust recipes when preparing the recipe for a different yield than the recipe calls for.

Desired yield / Original yield

1. Profit Pricing:  Used to calculate desired food cost %

Food revenues

-non food revenues

-desired profit 

= Allowable Food Cost

1.  Food Cost %  = Food costs / Food revenues

1.  Portion Costs = Total ingredient cost / # of portions

1.  Contribution Margin = Food revenue - food costs

1. Desired food cost % pricing method:  item food cost / desired food cost % = minimum item selling price

Basic Income Statement: 

Food revenue

-food cost

-labor cost

-all other costs

= Profit or loss