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How much does a bowl of chili cost on a full-cost basis? An out-of-pocket basis? For determining the true profitability of chili, how much does a bowl of chili really cost?

How much does a bowl of chili cost on a full-cost basis? An out-of-pocket basis? For determining the true profitability of chili, how much does a bowl of chili really cost?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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  1. How much does a bowl of chili cost on a full-cost basis? An out-of-pocket basis?
  2. For determining the true profitability of chili, how much does a bowl of chili really cost?
Chili Sales The selling prices for all Wendy's’ products sold by company restaurants were set at corporate headquarters. Although some price differences existed among restaurants in different locations, representative prices for 2001 were $0.99 for an 8-ounce serving of chili, $1.59 for a 12-ounce serving of chili, and $1.89 for a "single" hamburger. Chili sales were seasonal, and comprised about 5% of total Wendy's store sales compared with about 55% for hamburgers. As
Transcribed Image Text:Chili Sales The selling prices for all Wendy's’ products sold by company restaurants were set at corporate headquarters. Although some price differences existed among restaurants in different locations, representative prices for 2001 were $0.99 for an 8-ounce serving of chili, $1.59 for a 12-ounce serving of chili, and $1.89 for a "single" hamburger. Chili sales were seasonal, and comprised about 5% of total Wendy's store sales compared with about 55% for hamburgers. As
Costing the Chili Wendy's chili was prepared daily by the assistant manager, in accordance with Wendy's secret recipe. It was slow-simmered in a double boiler on a separate range top for a period of four to six hours. While cooking, the chili had to be stirred at least once each hour, and at the end of the day it was refrigerated for sale the following day. Normally, it took between 10 and 15 minutes to prepare a pot (referred to at Wendy's as a batch) of chili. First, the 48 quarter-pound cooked ground beef patties needed for a batch were obtained, if available, from the walk-in cooler. This took about one minute. These patties had been "well-done" sometime during the previous three days. Most of the time, it was not necessary to cook meat specifically for use in making chili, although the need to do so was more likely to occur during the months of October through March when approximately 60% of total annual chili sales occurred. If, as only happened approximately 10% of the time, it became necessary to cook meat specifically for use in making chili, the number of beef patties needed were taken from the trays of uncooked hamburgers that had been prepared using a special patty machine, at the rate of 120 patties every five minutes, earlier that morning. On average, it took 10 minutes to cook 48 hamburger patties. Before it was placed in the chili pot, the meat had to be chopped into small pieces. This generally took about five minutes to do. The remaining ingredients then had to be obtained from the shelves and mixed with the meat. This process also took about five minutes to complete, after which the chili was ready to be cooked. The quantities and costs of the ingredients needed to make a batch of chili and the labor costs associated with the different classifications of restaurant personnel are shown in Tables 4 and 5. Other direct costs associated with the chili included serving bowls, $0.035 each; lids for chili served at the carry-out window, $0.025 each; and spoons, $0.01 each. Table 4. Chili ingredients and costs. Quantity Description No. 10 can of crushed tomatoes 46-oz. cans of tomato juice 1 Wendy's seasoning packet Cost $2.75/can $1.25/can $1.00/packet $2.25/can 1 5 2 No. 10 cans of red beans 48 Cooked quarter-pound ground beef patties (12 lb. of ground beef) $3.50/lb. Note: The batch of chili described above yielded approximately 57 8-ounce servings. Table 5. Restaurant labor costs. Description Store Manager Co-Manager Assistant Manager Management Trainee Crew Cost $800.00/week (salary) $12.50/hour $10.50/hour $7.00/hour $5.75/hour Note: Payroll taxes and other employee-related costs averaged about 10% of the above amounts.
Transcribed Image Text:Costing the Chili Wendy's chili was prepared daily by the assistant manager, in accordance with Wendy's secret recipe. It was slow-simmered in a double boiler on a separate range top for a period of four to six hours. While cooking, the chili had to be stirred at least once each hour, and at the end of the day it was refrigerated for sale the following day. Normally, it took between 10 and 15 minutes to prepare a pot (referred to at Wendy's as a batch) of chili. First, the 48 quarter-pound cooked ground beef patties needed for a batch were obtained, if available, from the walk-in cooler. This took about one minute. These patties had been "well-done" sometime during the previous three days. Most of the time, it was not necessary to cook meat specifically for use in making chili, although the need to do so was more likely to occur during the months of October through March when approximately 60% of total annual chili sales occurred. If, as only happened approximately 10% of the time, it became necessary to cook meat specifically for use in making chili, the number of beef patties needed were taken from the trays of uncooked hamburgers that had been prepared using a special patty machine, at the rate of 120 patties every five minutes, earlier that morning. On average, it took 10 minutes to cook 48 hamburger patties. Before it was placed in the chili pot, the meat had to be chopped into small pieces. This generally took about five minutes to do. The remaining ingredients then had to be obtained from the shelves and mixed with the meat. This process also took about five minutes to complete, after which the chili was ready to be cooked. The quantities and costs of the ingredients needed to make a batch of chili and the labor costs associated with the different classifications of restaurant personnel are shown in Tables 4 and 5. Other direct costs associated with the chili included serving bowls, $0.035 each; lids for chili served at the carry-out window, $0.025 each; and spoons, $0.01 each. Table 4. Chili ingredients and costs. Quantity Description No. 10 can of crushed tomatoes 46-oz. cans of tomato juice 1 Wendy's seasoning packet Cost $2.75/can $1.25/can $1.00/packet $2.25/can 1 5 2 No. 10 cans of red beans 48 Cooked quarter-pound ground beef patties (12 lb. of ground beef) $3.50/lb. Note: The batch of chili described above yielded approximately 57 8-ounce servings. Table 5. Restaurant labor costs. Description Store Manager Co-Manager Assistant Manager Management Trainee Crew Cost $800.00/week (salary) $12.50/hour $10.50/hour $7.00/hour $5.75/hour Note: Payroll taxes and other employee-related costs averaged about 10% of the above amounts.
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