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! For more
details on Chipotle’s cost containment efforts, see the textbook Chapter
7, Section “Management’s Use of Variances-Concepts in Action.”
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, except a restaurant primarily engaged
in making pizza. Some examples would be Chipotle Mexican Grill, Five
Guys, Noodles & Co., Panera Bread, and Dunkin Donuts.
- For the restaurant chain you have selected, you will need to
research and locate company information, menus, and financial
information to assist you with the requirements of this project.
- Not every chain will have the same financial information available,
so it may be necessary to generate your own “fictitious” data in order
to complete the required tasks. If you do need to create data, be VERY CLEAR
in your computations which data is taken from publically available
information (provide the sources) and which data has been generated by
- Choose three 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
- 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
- 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.
Your paper should meet the following requirements:
- Minimally seven to ten pages in length (not including the title page and the reference page)
- Assignment should follow APA guidelines with respect to use of subheadings, 1” margins, and double spacing.
- References should include your textbook plus two additional credible
academic references. All sources used, including your textbook must be
referenced; paraphrased and quoted material must have accompanying
citations and cited per APA guidelines.
- Use of CSU Global Library is necessary.