Q 1
Chapter 6, Question 1
Carlita operates a take-out only pizza parlor that specializes in four-cheese pizzas. Carlita offers four different pizza sizes and she knows what it costs to make each size. Help her calculate her food cost percentage and contribution margin for each size pizza.
Pizza Size Product Cost Selling Price Food Cost % Contribution Margin
Small $3.10 $9.99
Medium $4.10 $11.99
Large $5.10 $13.99
Extra Large $6.10 $15.99
&12Chapter 6
Q 1
Which pizza size do you think is Carlita’s most profitable? Why?
Answer:
Q 2
Chapter 6, Question 2
Bill owns Bill’s Burger Barn, and he is dissatisfied with his consistently high food cost percentage. In an effort to drop his food cost percentage below 35 percent, he has decided to incorporate price blending into his pricing strategy. He has developed three combo items, and he wants to find out if his food cost percentage has been lowered after the first week of sales. Help Bill calculate the food cost percentage for his combo items.
Bill's Burger Barn Combo
Number Item Numbe
Sold Product Cost Total Cost Selling
Price Total
Sales Food Cost %
Hamburger 200 $1.50 $3.49
French Fries (large) 185 0.40 1.60
Soft Drink (16 oz.) 190 0.20 1.35
Total
Bill's Bacon Cheeseburger Combo
Number Item Numbe
Sold Product Cost Total Cost Selling
Price Total
Sales Food Cost %
Bacon Cheeseburger 160 $1.65 $4.29
Onion Rings 135 0.30 1.40
Soft Drink (16 oz.) 155 0.20 1.35
Total
Bill's Bacon Cheeseburger Combo
Number Item Numbe
Sold Product Cost Total Cost Selling
Price Total
Sales Food Cost %
Chicken Sandwich 75 $1.10 $3.15
French Fries (large) 75 0.40 1.60
Soft Drink (16 oz.) 75 0.20 1.35
Total
&12Chapter 6
Q 2
Should Bill continue with this pricing strategy?
Answer:
Q 3
Chapter 6, Question 3
Tonekwa has priced her menu items using the product cost percentage method in the past. She has asked her evening shift manager to price new menu items, and she believes that he will feel more comfortable using the factor method to price the new items. Help Tonekwa convert her desired product cost percentages to factors. (Spreadsheet hint: Use the ROUND function for the “Factor” column to three decimal places.)
Pricing Factor Table
Desired Product Cost % Facto
18%
21%
22%
24%
26%
31%
32%
36%
37%
41%
42%
44%
46%
&12Chapter 6
Q 3
Q 4
Chapter 6, Question 4
Bess and David own two small diners in a midsize city in Oklahoma. Bess has primary responsibility for the diner in the subu
s, and David has primary responsibility for the diner in the inner city. The menu items and product costs are the same in both diners, but the market in the inner city demands lower menu prices than that in the subu
s. So Bess has set her desired product cost percentage at 40 percent, and David’s desired product cost percentage is 42 percent because he can’t charge as much as Bess. Bess likes to use the product cost percentage method to price menu items and David likes to use the factor method. Help both of them determine their selling prices. (Spreadsheet hint: Use the ROUND function for “Pricing Factor” column to three decimal places.)
Bess and David's Diner - Subu
s (Bess)
Desired Product Cost Percentage: 40%
Product Cost Percentage Method
Menu Item
Product Cost Desired Product
Cost Percentage
Selling Price
Chicken Breast Dinner $2.25
Seafood Platter $3.45
Steak Dinner $4.99
Turkey Sandwich $1.25
Pork Chop $2.45
Hamburger $1.50
Cheeseburger $1.75
Fries $0.45
Meat Loaf $1.25
Small Drink $0.35
Bess and David's Diner - Inner City (David)
Desired Product Cost Percentage: 42%
Factor Method
Menu Item
Product Cost Pricing Factor
Selling Price
Chicken Breast Dinner $2.25
Seafood Platter $3.45
Steak Dinner $4.99
Turkey Sandwich $1.25
Pork Chop $2.45
Hamburger $1.50
Cheeseburger $1.75
Fries $0.45
Meat Loaf $1.25
Small Drink $0.35
&12Chapter 6
Q 4
Q 5
Chapter 6, Question 5
Frankie Marie owns Frankie’s Cafeteria in a small southern town. She has decided to price her menu items using the contribution margin method. She has determined the following contribution margins for her food categories:
Contribution Margins:
Salad: $1.20
Entrées: $4.25
Desserts: $1.50
Drinks: $1.10
Help her price her menu items.
Contribution Margin Approach
Menu Item Product Cost Desired
Contribution
Margin Selling Price
Salads
Dinner Salad $0.30
Macaroni Salad $0.55
Potato Salad $0.65
Ca
ot and Raisin Salad $0.40
Bavarian Salad $0.60
Entrées
Liver and Onions $2.50
Steak Patty $2.75
Meat Loaf $2.85
Chicken Fried Steak $2.10
Fried Catfish $2.35
Chicken Casserole $2.25
Turkey and Dressing $2.55
Desserts
Chocolate Cream Pie $0.75
Coconut Cream Pie $0.75
Pecan Pie $1.25
Chocolate Cake $0.60
Pudding $0.20
Jell-O $0.20
Ca
ot Cake $0.70
Drinks
Coffee $0.15
Tea $0.15
Soft Drink $0.15
&12Chapter 6
Q 5
Q 6
Chapter 6, Question 6
Ga
iel Hinojosa owns Ga
iel’s Tex-Mex Restaurant, an extremely popular, 250-seat establishment in a large California city. Ga
iel has decided to offer a four-hour Sunday
unch buffet for his guests because he thinks he can achieve a guest count of 625 (2½ turns). Last Sunday, June 1, he offered the buffet for the first time, and he charged $12.00 per guest. However, he only served 400 people. He believes he could attract more guests if he offered the buffet at a lower price. He collected information on last Sunday’s buffet product usage, and he used the ABC method to put his menu items into categories. His desired food cost percentage is 40 percent. Help him complete the buffet product usage report. (Spreadsheet hint: Use the ROUND function for “Cost per Guest” and “Desired Selling Price Based on Cost” to two decimal places.)
Buffet Product Usage (Sunday, June 1): Ga
iel's Tex-Mex Restaurant
Menu Item Category Unit Beginning
Amount Additions Ending
Amount Total
Usage Unit
Cost Total
Cost
Steak Fajitas A lb. 20 60 6 $4.50
Chicken Fajitas A lb. 15 70 10 4.00
Carne Asada A lb. 10 50 4 4.25
Cheese Enchiladas B lb. 2 80 15 2.00
Beef Enchiladas B lb. 3 60 10 2.50
Enchiladas Verde B lb. 1 70 8 2.00
Chili Rellenos B lb. 10 45 5 2.75
Tacos C each 0 150 20 0.30
Bean Chalupas C each 0 175 5 0.25
Tortilla Soup C gal. 2 10 4 0.30
Spanish Rice C lb. 5 70 12 0.20
Refried Beans C lb. 15 75 6 0.20
Sopapillas C each 25 200 30 0.15
Total Product Cost
Guests Served: 400 Desired Food Cost %: 40%
Total Product Cost: Desired Selling Price Based on Cost:
Cost Per Guest:
Revenues, June 1: Projected Revenues, June 8: Difference:
&12Chapter 6
Q 6
After completing this analysis, what should be Ga
iel’s selling price? If he uses this new selling price and he serves 625 guests next Sunday, June 8, will his total revenue increase? If so, how much?
Answer:
Q 7
Chapter 6, Question 7
JoAnna is the foodservice director at Reading Hospital. She has just started a new menu program to offer guests visiting hospitalized patients “guest trays” so the patients and their guests can eat together. She has been offering her guest-tray program for one month, and it has been popular. She would like to know her average selling price per guest (check average) to see if she needs to change the price of her menu items. She would like to keep her average selling price above $11.50. Given the following information, and the fact that JoAnna priced each menu item with an $8.00 per guest tray contribution margin, calculate her average selling price for the month.
Menu Item Number Sold Product Cost Contribution Margin Selling Price Total Sales
Hunter's Chicken 2,560 $3.50
Jambalaya 750 $11.75
Grilled Salmon 1,200 $4.50
Beef Tenderloin 500 $16.50
Vegetarian Cheese Bake 1,210 $2.75
Total
Average Selling Price
&12Chapter 6
Q 7
Did JoAnna achieve her desired average selling price per guest? Does she need to change her prices?
Answer:
Q 8
Chapter 6, Question 8
Ming has recently inherited the Quick Wok restaurant started by her parents. It is located in a busy strip shopping area su
ounded by many office complexes, but it is also near many quick-service restaurants. The Quick Wok has been successful because of the quality of its food, but Ming feels that it could do even better at lunchtime if she could create a value meal option to appeal to the price-conscious consumer. Because both a McDonald’s and a Wendy’s are within a quarter-mile of her store, she has determined that her own value meal menu item needs to be priced at $1.00. She creates a stir-fry dish that, when served with white rice, has a portion cost of 65 cents. Her beverages have a cost of 20 cents. The beverages already sell for $1.00 each, and she does not want to raise this price.
She believes she could sell 75 of the new value meals per day if she offers the stir-fry dish at $1.00. As well, she seeks an overall product cost percentage of 35 percent. From historical data, she nows that 80 percent of her customers purchase a drink with their meals.
Value Meal and Beverage
Menu Item Numbe
Sold Item Cost Total Cost Selling
Price Total
Sales Food Cost %
Stir Fry Dish 75
Beverage
Total
Number of Beverages to Achieve Target Overall Product Cost Percentage
Menu Item Numbe
Sold Item Cost Total Cost Selling
Price Total
Sales Food Cost %
Stir Fry Dish 75
Beverage
Total
&12Chapter 6
Q 8
How many beverages must be sold in addition to the value meals if Ming is to achieve her target food cost percentage goal? Is this number feasible?
Answer:
Based on the information given, calculate the overall product cost percentage of the value meals and beverages. Would you advise Ming to “go for it”? Why or why not?
Answer:
Q 9
Chapter 6, Question 9
Jackson Daniels is the director of food and beverage at the Foxfire Country Club. In June, Jackson’s club hosted three weddings. Each wedding featured a four-hour hosted bar paid for by the
ide and groom. The consumption data from each event is listed below. Complete the missing data in the report, and then help Jackson answer the questions that follow:
Number of Guests Served Beer Cost Wine Cost Spirit Cost Total Cost Cost per Guest
June 07 250 $500 $400 $600
June 14 650 1,225 2,875 5.75
June 21 400 525 1,000 675
Total
&12Chapter 6
Q 9
a. What do you think should be Jackson’s “best estimate” of the cost to the Club of providing a four-hour hosted bar at weddings?
Answer:
. If Jackson seeks to ensure a 20 percent beverage cost, what should be his selling price, per guest, for a four-hour hosted bar?
Answer:
c. Would you recommend Jackson charge half of the amount in the answer in b above for a two-hour hosted bar? Explain your answer.
Answer:
Q 10
Chapter 6, Question 10
&12Chapter 6
Q 10
One criticism of both the product cost percentage and contribution margin methods used for determining menu prices is that both are based primarily on the cost of food (or beverages) and ignore the cost of labor. In many foodservice operations, however, the cost of labor equals or even exceeds the cost of food and beverages. Do you foresee the cost of labor playing an increasing role in the calculation of menu prices? Explain your answer.
Answer: