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? Chili SalesThe selling prices for all Wendy's’ products sold by company restaurants were set atcorporate headquarters. Although some price differences existed among restaurants in differentlocations, representative prices for 2001 were $0.99 for an 8-ounce serving of chili, $1.59 for a12-ounce serving of chili, and $1.89 for a "single" hamburger. Chili sales were seasonal, andcomprised about 5% of total Wendy's store sales compared with about 55% for hamburgers. As Costing the ChiliWendy's chili was prepared daily by the assistant manager, in accordance with Wendy'ssecret recipe. It was slow-simmered in a double boiler on a separate range top for a period offour to six hours. While cooking, the chili had to be stirred at least once each hour, and at the endof 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 abatch) of chili. First, the 48 quarter-pound cooked ground beef patties needed for a batch wereobtained, if available, from the walk-in cooler. This took about one minute. These patties hadbeen "well-done" sometime during the previous three days. Most of the time, it was notnecessary to cook meat specifically for use in making chili, although the need to do so was morelikely to occur during the months of October through March when approximately 60% of totalannual chili sales occurred. If, as only happened approximately 10% of the time, it becamenecessary to cook meat specifically for use in making chili, the number of beef patties neededwere taken from the trays of uncooked hamburgers that had been prepared using a special pattymachine, at the rate of 120 patties every five minutes, earlier that morning. On average, it took10 minutes to cook 48 hamburger patties.Before it was placed in the chili pot, the meat had to be chopped into small pieces. Thisgenerally took about five minutes to do. The remaining ingredients then had to be obtained fromthe shelves and mixed with the meat. This process also took about five minutes to complete, afterwhich the chili was ready to be cooked. The quantities and costs of the ingredients needed tomake a batch of chili and the labor costs associated with the different classifications of restaurantpersonnel are shown in Tables 4 and 5. Other direct costs associated with the chili includedserving bowls, $0.035 each; lids for chili served at the carry-out window, $0.025 each; andspoons, $0.01 each.Table 4. Chili ingredients and costs.QuantityDescriptionNo. 10 can of crushed tomatoes46-oz. cans of tomato juice1 Wendy's seasoning packetCost$2.75/can$1.25/can$1.00/packet$2.25/can152 No. 10 cans of red beans48 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.DescriptionStore ManagerCo-ManagerAssistant ManagerManagement TraineeCrewCost$800.00/week (salary)$12.50/hour$10.50/hour$7.00/hour$5.75/hourNote: Payroll taxes and other employee-related costs averaged about 10% of the above amounts.

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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?

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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