Question

Restaurants such as Subway generally offer a limited number of food categories (subs, salads, wraps, etc.) that are similarly priced. On the other hand, a restaurant such as Applebee’s will have a broader menu in which each entrée is individually priced. Consider the “behind the scenes” operation of each restaurant.

Assuming that the prices reflect the restaurants’ cost, explain why these two restaurants price their products so differently. How might a Subway store’s overhead differ from Applebee’s? How could these differences impact the restaurants’ costing systems? Briefly explain a process that each might use to estimate product costs. Include overhead costs as well as whether or how those might be pooled. For any cost pools, identify an appropriate cost driver.

Answer 1

Lets say subway type restaurants are specified restaurants and applebees are general type f restaurants

general restaurants	Specific restaurants
General restaurants are those restaurants which have broader menu i.e, they offer large variety of foods, say from a water bottle to buttermilk, from sandwiches to hotdogs,even the 7 course meals of buffets.	Specific restaurants are those resaurants which offers only limited things in which they specialse or expertise because of which there name has became a brand. They do not focus on everything, rather focus on what they make to make it better.
There main motto is to attract the large people as they offer variety of foods. they attract every section of the society by offering various food menu.	They try to attract only that part of the society which like some specific type of food such as wraps, burgers etc.
Since such type of restaurants offers variety of foods, thus the price is set according to the overall restaurant type. For example, a five star restaurant wil price its products high as it has high overhead cost and as well as the quality of food is high and hospitality is top class. where as when we just go to some fancy restaurant, there is compromise in everything.	When we go to some specific place, such as subway, what they offer is exclusive product in which they expertise. What they focus is on the quality of the products and not the cost cutting. Thus the food type they provide are exclusively made and it is tailor made so that what customer wants is the only thing they provide. Thus the costing is different as compared to other restaurants.
Overhead cost of the restaurant is distributed in the large way based on the different variety of menu.Normally a restaurant is big in size, thus its overhead cost is high. Such cost includes high rent, staff cost, managers salary, refrigiration charges and other cost to keep the products as there are variety of stuffs required. Thus the overhead cost is very high due to large variety of food stuffs.	specialsed stores deals in a very few products but the quality products, thus the overhead cost is less as compared to the the general restaurants. Thus the keepin up cost is low as they have to maintain the stock of the limited sources which they specialise in. Also the staff cost is very low such store deals in self service, thus the staff is very few as compared to the general restaurants. Thus salary payable is also low. Thus overhead cost is very low
In coming to cost of any products, the overall cost is firstly calculated and then the it is distributed on the basis of costing of the items available	The overall costing is done on the basis of the overalll cost distributed on the limited items cost