Should Wendy’s drop Chili from it’s menu? Explain in a concise paragraph. Note: use CVP Analysis to compare Costing the Chili Wendy’s chili was prepared daily by the assistant manager, in accordance with Wendy’s secret recipe. It was slow-simmered in a double boiler on a separate range top for a period of four to six hours. While cooking, the chili had to be stirred at least once each hour, and at the end of the day it was refrigerated for sale the following day Normally, it took between 10 and 15 minutes to prepare a pot (referred to at Wendy’s as a batch) of chili. First, the 48 quarter-pound cooked ground beef patties needed for a batch were obtained, if available, from the walk-in cooler. This took about one minute. These patties had been “well-done” sometime during the previous three days. Most of the time, it was not necessary to cook meat specifically for use in making chili, although the need to do so was more likely to occur during the months of October through March when approximately 60% of total annual chili sales occurred. If, as only happened approximately 10% of the time, it became necessary to cook meat specifically for use in making chili, the number of beef patties needed were taken from the trays of uncooked hamburgers that had been prepared using a special patty machine, at the rate of 120 patties every five minutes, earlier that morning. On average, it toolk 10 minutes to cook 48 hamburger patties. Before it was placed in the chili pot, the meat had to be chopped into small pieces. This generally took about five minutes to do. The remaining ingredients then had to be obtained from the shelves and mixed with the meat. This process also took about five minutes to complete, after which the chili was ready to be cooked. The quantities and costs of the ingredients needed to make a batch of chili and the labor costs associated with the different classifications of restaurant personnel are shown in Tables 4 and 5. Other direct costs associated with the chili included serving bowls, $0.035 each; lids for chili served at the carry-out window, S0.025 each; and spoons, $0.01 each. Table 4. Chili ingredients and costs Cost $2.75/can $1.25/can $1.00/packet $2.25/can antit on 1 No. 10 can of crushed tomatoes 5 46-0z. cans of tomato juice 1 Wendy’s seasoning packe 2 No. 10 cans of red beans 48 Cooked quarter-pound ground beef patties 12 lb. of ground bee $3.50/lb Note: The batch of chili described above yielded approximately 57 8-ounce servings. Table 5. Restaurant labor costs. Description Store Manager Co-Manager Assistant Manager Management Trainee Crew ost $800.00/week (salary) $12.50/hour $10.50/hour $5.75/hour Note: Payroll taxes and other employee-related costs averaged about 10% of the above amounts. https://d2vlcm61l7u1fs.cloudfront.net/media%2F6a7%2F6a7b0249-233d-4922-8c96-c99f3a985857%2Fphp4DXoke.png

Let us first find out the cost of serving chili by adding up number of direct and indirect costs:
Step1: Cost of Serving the customers:
Cost of bowl = $ 0.035
Cost of Lid = $0.025
Cost of Spoon = $ 0.01
Total Cost =$0.07
Step 2: Cost of the ingredients used to make 57 eight ounce servings:
Crushed Tomatoes = $2.75 (1 * $2.75)
Tomato Juice = $6.25 (5 * $1.25)
Seasoning Packet = $1.00 (1 * $1.00)
Red Beans = $4.50 (2 * $2.25)
Beef Patties = $42 (12 * $3.50)
Total Price = 55.50 $
Therefore total price of 1 eight pound serving = 55.50 / 57
= 0.98 $
Step 3: Calculation of Total Material Cost
Total material cost = (Cost of serving the customers + Cost of the ingredients used to make 57 eight ounce servings)
= 0.07 + 0.98
= $ 1.05
Step 4: Calculation of labor cost
Assistant manager cost = $10.50 per hour + 10% tax
= $11.55
Preparation time = 12.5 minutes (we take the average of 10 to 15 minutes as given)
Labor Cost = ($11.55 / 60) * 12.5
= 0.1925 * 12.5
= 2.41 $
Therefore cost of 1 eight pound serving = 2.41 / 57
= $ 0.04 per serving
Step 5: Total cost per serving of chili:
= Total material cost (from step 3) + Labor cost
= 1.05 + 0.04
= $ 1.09 per serving of chili
The total cost per serving of chili = $ 1.09
As per the question the sales of chili is $ 0.99 for an eight ounce serving of chili plus it will increase by 14% for the year 2001 (that is 1.13 $). And the total cost as calculated per serving of chili is $ 1.09. So the idea to drop chili from the menu would be wrong as the cost to prepare chili is 1.09 which is far less than the revenue generated out of the sales of the chili. Moreover the manner to prepare chili is economical as the overcooked patties are used for the preparation. This results into low cost involvement without any wastage of left over patties and plus an additional item in the menu. On the contrary if the chili would be dropped from the menu then it won’t be able to generate enough revenue even by increasing the sales of hamburger or by adding some alternate food item in the menu. Above all removing chili would shatter the loyalty of the customers and make them feel dissatisfied as a result they would discontinue their purchases and hence less revenue generation.
 
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