ACT 460 CSUGC Potential Facto

Option #2: Comprehensive Decision Making

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 Mexican Grill, 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!

Profit margins in the restaurant industry are small, and operating costs are high.
Variances on budgeted amounts can be unwelcome interrupters in this business model. Variance analysis and budget planning are essential for survival in the business. This project option will allow you to apply your knowledge of financial analysis to the restaurant industry to problem solve and plan for the future.

  1. 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.
    1. 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.
    2. 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 create data, be VERY CLEAR in your computations which data is taken from publicly available information (provide the sources) and which data has been generated by you.
  2. Choose 1 menu item from the menu of the restaurant. Familiarize yourself with the product including the ingredients, processing method, general selling price in your area, packaging requirements (if applicable), and accessories (straw, sweetener, fork/knife, condiments, etc.). In Module 3, you will be submitting this information as part of your Portfolio Project milestone.
  3. You have been notified by your purchasing department that the availability of one of the substantial ingredients of your menu item is impacted by an unusually cold and snowy winter for a period of at least 6 months. The cost of the ingredient will now increase by 30%. This unexpected supply chain issue has created havoc for budgeted profits and costs. Create a “before and after” computation scenario to show how the impact of this change will impact operating income assuming all other variables remain constant. (See textbook Exhibit 14-1 for a sample computation format.)
    1. In a business with slim margins, 30% is tough to absorb even on a short run basis. How might your company be able to react to the change? Are there opportunities to: offset this extra cost with a price increase, maintain gross margin, or offer the product to consumers at the same price currently? Model alternatives and present your calculations and solution in a supporting table included in your paper.
  4. A good reliable labor force is tough to find for the fast-casual restaurant industry. During the summer, the company has an easier time finding help, but when school is in session, many students are unavailable for employment. Thus, the company occasionally has to increase wages in order to attract employees. Assume the company has to increase pay by $1.25 per hour over minimum wage for the foreseeable future. Use the same “before” scenario from 3.a. and run an “after” scenario for the increased wages to show the impact on operating income.
  5. In a Microsoft Word document, develop a project for this company that will require the purchase of additional equipment, in a short-term decision-making scenario. Research the cost of this equipment and develop an expectation regarding the cost savings for the company. Describe it fully and compute an incremental analysis for the company. Present your calculations in a supporting table included in your paper.
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