MA_Wendy_s_Group1.pptx

Management Accounting Assignment

Wendy’s Chili :A Costing Conundrum

Prepared by:

Amit Yadav 5AAshish Khola 12A

Khushit Mehta 21ARohit Nadgouda 37ASameeksha Gupta 42A

Introduction

Wendy’s Inc. founded in Columbus, Ohio in November 1969

Focus on providing old fashioned, cooked-to-order hamburgers; reasonably priced and quickly served

Four offerings – Hamburger, French fries, Frosty dairy dessert and Chili

Growth by franchising

Drive-through concept very popular in urban and suburban areas

Income from sales and franchise royalties being the major avenues of revenue

Introduction of more varieties and food items in the menu

By the onset of the third millennium, elimination of one food item was deemed necessary

Chili was brought under scrutiny and critically examined

Cost, effort, preparation and sales (revenue) were calculated and evaluated

Initial success and rapid growth in an apparently saturated industry

Targeted a different segment – young adults and adults

Product differentiation – “Old fashioned” hamburger

Customers could see the preparation process and it was made to order leading to higher customer satisfaction

Unique shape that appealed to the customers and also gave the impression of the patty being bigger than the burger

Customers liked the taste of Wendy’s a lot – more than those of its competitors’ products (Mc Donald’s, Burger King)

Limited Menu – Pros and Cons and future menu expansion

Advantages:

• Time saving due to preparation of only few specific items

• Cost saving due to smaller range of products

• Reduced price due to low cost which would entice and attract customers

• Specialization and development of expertise in preparation

• Value addition – 256 varieties of hamburgers with a core menu of only four items

Limited Menu – Pros and Cons and future menu expansion

Disadvantages:

• Threat from competitors – they may provide more “core” products and varieties

• Not suited for vegetarian customers

• Customers who wanted variety and option would be dissatisfied

• This could potentially lead to loss of customers to competitors

Future menu expansion:

• To cope with increasing competition, diversified customers and changing trends, Wendy’s finally decided to expand its menu offerings

• It thus started offering Salad Bar and Chicken

Success of Wendy’s drive-through window concept

First mover advantage

Started in 1970s

Pioneer and originator of the concept

Convenience and ease offered along with the uniqueness and novelty of the idea

Cost of a bowl of Chili

Assumptions:• Time taken for preparation is assumed 15 minutes (as average is 10-15

minutes; but, the different activities add up to more than 15 minutes – so higher range is taken)

• Assistant manager is the only staff member to work on chili preparation hence only his salary is considered

Cost of a bowl of Chili

All the data for servings is calculated for an 8 oz. intended pot, consisting of 57 servings

Thus, we have reduced the sunk costs from the full cost to arrive at the out-of-pocket cost

Chili is the fourth item on the menu and is a separate offering which requires 12 pounds of beef patties per serving.

However, the beef patties are taken from pre-cooked previous patties for 90% of the time, so 90% of the cost of patties ($42 per batch) is subtracted as sunk cost, since the patties would have gone waste anyway

Profitability of Chili

For determining profitability, we have considered only the dine-in cost, as that happens to be the majority mode of sales

Also, we have considered the out-of-pocket cost as it considers only relevant costs for determining profitability

Both the variants are profitable

Chili – continue or drop?

Very profitable venture. It should be continued

Sales are at around 5% of total store sales, which shows very little contribution to the overall revenue

Growth of sales revenue is good and can be leveraged to earn higher profits

Hence, after critical examination, we feel that Chili should be continued the menu

Thank You