Question

Table 2 Company Restaurants December 31, 1978 Columbus, Ohio Cincinnati, Ohio Dayton, Ohio Toledo, Ohio Atlanta, Georgia Tampa, Sarasota, St. Petersburg and Clearwater, Florida Jacksonville, Florida Detroit, Michigan Indianapolis, Indiana Fort Worth, Texas Houston, Texas Dallas, Texas Oklahoma City, Oklahoma Tulsa, Oklahoma Memphis, Tennessee Louisville, Kentucky Syracuse, New York West Virginia 20 At this time, there were no franchised restaurants located in any of the market areas served by company restaurants. COMPANY REVENUES Wendy's initial revenues came from four principal sources. As shown in Table 3, these were: sales made by company restaurants, royalties paid by franchise owners (franchisees), technical assistance fees paid by franchise owners, and interest earned on investments. The increase in the percentage of total revenues that resulted from royalties during the five year period covered by Table 3 was primarily caused by the substantial increase that occurred in the number of franchised restaurants relative to the number of company restaurants. Table 3 Percentage Revenue Composition 1974-1978 1974 Year Ended December 31 1975 1976 1977 1978 87. 109/ Revenues: Company restaurants Royalties Technical assistance fees Interest, other income 94.21% 333 93.37% 4.26 90.16% 6.40 9.50 1.70 93 100.00% ,67 100.00% 1.28 100.00% 1.36 100.00% 84.13% 12.65 1.87 1.35 100.00%

Q1. How much does a bowl of chili cost on a full cost basis and on an out-of-pocket basis?

Q2. For determining profitability, how much does a bowl of chili really cost??

Answer 1

Answer for 1 & 2.

Assumptions or Notes:

1. We are considering full-cost basis to be the cost if all 48 patties had to be prepared and cooked specifically for the purpose of making chili. Out-of pocket cost is the cost to prepare the chili using left over "well done" patties for the chili, so Wendy's is
only out of pocket for the rest of the ingredients, labor, container, and spoon.

2. While 90% of the time chili costs are able to be calculated using the out-of-pocket basis, for the purpose of true profitability, we will consider both methods equally on an 8 oz serving.Therefore cost:
= (.37+1.13)/2 = $0.75 per 8 oz serving.

Qty	Description	Cost Per	Total Cost
1	No. 10 can of crushed tomatoes	$2.75	$2.75
5	46-oz. cans of tomato juice	$1.25	$6.25
1	Wendy's seasoning packet	$1	$1
2	No. 10 cans of red beans	$2.5	$4.5
12	pounds of ground beef (Cooked quarter lb. patties)	$3.5	$42

Unit Costs
Qty	Description	Cost Per
1	Serving bowl	$ 0.035 each
1	Lid	$ 0.025 each
1	Spoon	$ 0.010 each

Cost
Ingredients out-of-pocket (Pre-cooked)	$ 14.50
Ingredients full-cost (Not-cooked)	$ 56.50
Labor out-of-pocket (Pre-cooked)	$ 2.63
Labor full-cost (Not cooked) (Cooked by crew)	$ 3.67

Out-of-Pocket (90% of the time)	Cost	Margin	PM
1 oz. (Pre-cooked)	$ 0.0376
8 oz. individual cost (Pre-cooked)	$ 0.037	$ 0.62	$ 62.6%
12 oz. individual cost (Pre-cooked)	$ 0.52	$ 1.07	$ 67.3%

Full-Cost (10% of the time)	Cost	Margin	PM
1 oz. (Not cooked)	0.132
8 oz. individual cost (Not cooked)	$ 1.13	$ (0.14)	-13.70%
12 oz. individual cost (Not cooked)	$ 1.65	$ (0.06)	-4.00%

Particulars	Sales	Profit	PM
Total store sales 2001	$ 1,925,319
Chili sales 2001	$ 96,266
Chili sales on Out-of-Pocket basis	$ 86,639	$ 54,221
Chili sales on Full-Cost basis	$ 9,627	$ (1,319)
Total chili profit	$ 52,902		55%

Restaurant Costs
Description	Cost Per
Store Manager	$ 800.00 week
Co-Manager	$ 12.50 hour
Assistant Manager	$ 10.50 hour
Management Trainee	$ 7.00 hour
Crew	$ 5.75 hour

Time to Prepare (Not Cooked)	Minutes
Obtain cooked patties from walk-in	1
Make patties	2
Cook 48 patties	10
Chop meat	5
Obtain & mix ingredients	5
Stirring (1x every hour)	2.5

Time to Prepare (Pre-cooked)	Minutes
Normal prep time (avg.)	12.5
Stirring (1x every hour)	2.5
Total ounces in full batch	456
Chili Retail Prices
Price	Size (oz.)
$ 0.99	8
$ 1.59	12