Wendy’s Chili Revisited Essay Sample

up locations in busy urban and suburban areas, enhancing visibility and attracting a steady flow of customers. The restaurants were built on large plots of land with ample parking, ensuring easy accessibility for customers. The interiors and exteriors of all the restaurants were designed to maintain a level of standardization.

Wendy's implemented a franchising policy that aimed to reduce unnecessary competition. Franchises were granted based on geographical location rather than a specific restaurant, and were not located near company-owned restaurants. As a result, the company and franchisee establishments did not compete with each other for customers. Wendy's had a structured system in place to provide technical assistance and consultancy to franchisees, which helped them overcome any initial difficulties and fostered an understanding of the Wendy's corporate values.

In December 1972, the Wendys Management Institute was established with the aim of assisting franchise owners and enhancing their management skills. This also contributed to maintaining consistency and standardization in various aspects of the restaurants including service, layout, and design.

Despite having advantages, Wendy's had a limited menu consisting only of beefburgers and French fries. Nonetheless, as the fast food industry began offering a broader array of items, Wendy's management realized the significance in providing consumers with more choices. In the late 1970s, they implemented a salad bar, and in October 1983, baked potatoes were added to their menu. This move made Wendy's the initial nationwide fast food chain to expand its menu in response to growing competition from different sources.

Also, fast food had to adapt to changing customer demands and preferences. By the mid 1980s, fast food expanded to include a variety of items such as salads and cultural

foods. Furthermore, customers were becoming more conscious about their health, and Wendy's limited menu often contained high levels of cholesterol.

In order to keep up with shifting consumer preferences and gain a larger share of the fast food market, Wendys decided to introduce new items to their menu. They made a significant advancement in November 1970 by becoming the first restaurant to establish a drive-thru window at their second location in Columbus. This pick-up window, which had a separate grill, was a unique feature in the fast food industry. Competitors quickly followed suit and adopted this trend.

Both McDonalds and Burger King have followed suit by introducing a similar feature at some of their establishments shortly after. However, Wendys has been the only one to effectively implement such a offering. The success of this implementation can be attributed to the strategic location and layout of their restaurants, all of which were built as standalone eateries.

With enough space to accommodate this type of installation, the drive-thru feature was incorporated in all Wendy's locations, both company-owned and franchise-owned. Unlike at stand-alone restaurants, competitors did not fully adopt the drive-thru installation, making it not a common feature.

The limited menu at Wendys helped speed up the ordering and serving process at the drive-thru counter. Additionally, each drive-thru window had its own grill, ensuring efficiency and short wait times for customers. The cost of making a batch of chili includes the out-of-pocket expenses for ingredients, such as a can of tomatoes.

00 $ 1. 75 $ 1. 750 Tomato Juice ( Can ) 5. 00 $ 0. 70 $ 3. 500 Seasoning ( Pkt ) 1.

00 $ 0. 50 $ 0. 500 Red

Beans ( Can ) 2. 00 $ 1. 35 $ 2. 700 Land Beef ( Lbs ) 12.

00 $ 1. 25 $ 15. 000 Direct Labor ( Hrs ) 0. 50 $ 5.

75 dollars, 2.875 dollars, 26.325 Helpings Produced per batch and an average of 57.00 dollars.

The cost breakdown for a bowl of chili is as follows: serving bowl ($0.462), lid ($0.035), spoon ($0.025). The total cost for the bowl of chili, on an out-of-pocket basis, is $0.532.

The price of a bowl of chili is $0.532 (refer to above). However, there are various factors that need to be taken into account before agreeing to this cost.

To calculate the cost of chili, it is crucial to take into account the preparation method involving overcooked ground beef cakes. The expense of beef is not factored into this calculation as it is already spent from a prior process. Nevertheless, there is an incurred direct cost when grilling the cakes specifically for the chili, which must be included in the total cost.

Secondly, the direct labor cost is based on the time it takes to prepare ingredients for chili (20 minutes) and individually grill cakes (10 minutes). The labor rate used is that of the Assistant Manager because we are unsure who will be preparing the ingredients, so we have opted for the higher rate to be conservative. In addition, the cost of take-away lids is included in the overall cost because we do not have information on how many are used for in-house dining versus take-out. Again, it is better to overestimate costs than to underestimate, where we could potentially sell chili for less than its actual

cost. For more information on various types of costs and products, please see Appendix A. (2) Full-cost basis. Details: Quantity - Tomato (Can) 1.00; Rate - $1.

75 $ 1. 750 Tomato Juice ( Can ) 5. 00 $ 0. 70 $ 3. 500 Seasoning ( Pkt ) 1. 00 $ 0.

50 $ 0. 500 Red Beans ( Can ) 2. 00 $ 1.35 $ 2. 700 Land Beef ( Lbs ) 12. 00 $ 1.

25$15,000 Direct Labor (Hrs) 0.50$5.75 $2.

875 $ 26. 325 Helpings Produced 57. 00 Avg. Cost $ 0. 462 Serving Bowl $ 0. 035 Lid $ 0.

025 Spoon $ 0. 010

Fixed Overheads * $ 0. 180

Cost of a Bowl of Chili $ 0. 712

The cost of chili on a full-cost footing is $ 0. 712.

This refers to the per unit cost of chili, including the expenses allocated to chili and the fixed operating expenses.*Please see Appendix B for the calculation of Fixed Overheads ( three ) The actual cost of a bowl of chili consists of the materials used, the labor involved, and a portion of the establishment's operating expenses, such as rent and electricity expenses.

While the costs of cooking gas, cooking oil, wages, and other operating expenses are known for a mercantile establishment, there is a lack of information on potential additional operating expenses. Consequently, determining the precise cost of a bowl of chili is not feasible.

Although the current cost of chili is slightly higher than its full-cost basis, we can calculate the profitability of chili assuming it to be $0.712. This calculation considers the revenue as $0.990 and deducts the cost of a bowl of chili at $0.532, resulting

in a contribution of $0.

458 Less: Fixed Overheads $0. 180 Net Income per Bowl $0. 278 The Case for Chili Chili sales have historically contributed about 5% of revenues at Wendy's. This may seem insignificant compared to the 55% contributed by burger sales. However.

We recommend that the menu includes chili for the following reasons: (1) Chili generates a profit margin of $0.458, which is significant considering the selling price of $0.99 per serving. Even after subtracting labor costs associated with a bowl of chili, chili sales still generate a net profit of $0.

Wendys can enhance the value of their overcooked cakes by incorporating chili into their menu, which is a cost-effective approach. This enables them to provide a unique and affordable item. However, excluding chili from the menu could potentially lead to a decline in overall revenue that cannot be compensated by increased burger sales. To offset this revenue loss, Wendys might need to introduce and promote another item, without any assurance of its success. Moreover, eliminating chili from the menu may result in losing a devoted customer base that has been cultivated over time. For an analysis of the price impact of beef and a model for determining the price of chili, please see Appendix C.

What Could Have Been: In the late eighties, Wendy's experienced a decline in net income due to a slowing economy and intense competition. Competitors had rapidly expanded and significantly improved the quality of their products, services, and facilities.

Wendys started targeting their niche of adult customers by introducing new menu items and redesigning their stores to make them more family-oriented. One strategy that could have been employed by Wendys to

effectively compete would have been to transform their restaurants into a more child-friendly atmosphere in order to diversify their customer base and attract families. While the competition was mostly offering discounted value meals during this time, Wendys should have also prioritized minimizing costs while competing on price.

This would have increased their borders. Looking Ahead The onset of the 1990s brought about significant changes to the fast food industry. In order to maintain their market share, Wendy's management will need to effectively address shifts in consumer preferences, changing demographics, and a substantial increase in competition within the industry. The booming economic growth in the 90s had a significant impact on consumer lifestyles, as they had more disposable income primarily due to dual income households.

The preference for a pricier and more fulfilling meal over quick and convenient fast food has grown among consumers. Moreover, the average American's decreased interest in fast food stems from heightened health consciousness. As a result, fast-food establishments must modify their menus to provide healthier and more nourishing options. Additionally, they should adapt their food preparation techniques accordingly.

Wendys should think about expanding their menu to include more low-calorie choices like yogurts and water ices. They could also offer a wider range of fish and poultry options. Back in the 1970s, Wendys had an advantage with their standalone restaurants that provided plenty of parking and easy access for customers. However, the emergence of mall culture in the 1990s has led to malls offering a multitude of dining options. Consequently, the fast-food industry now relies more on sales from customers visiting malls and shopping complexes rather than standalone establishments.

Malls provide a convenient option for customers

by offering various activities in one place. After shopping or watching movies, people often prefer nearby dining options for convenience. However, Wendys' expansion plans may be restricted if they continue to focus on constructing standalone locations. Instead, Wendys should explore co-branding opportunities.

Perhaps with film halls and gas stations to further increase its penetration in the market, the fast service restaurant industry has seen an influx of new competitors. Along with direct competition in the form of traditional fast food restaurants, cultural food restaurants and food stores have also entered the market. Consumers are increasingly opting for these alternatives as fast food is viewed as unhealthy.

Furthermore, these specialty restaurants offer a delivery service, which makes them an appealing choice to compete with.

Wendys should consider expanding its supply to countries near its establishments, given the current market challenges. Although management has successfully turned the company around since the late eighties, optimism must be cautious due to the increasingly competitive operating environment. Simply having good food is not enough to guarantee success, as there are limited ways to prepare a burger.

Wendys will face challenges in forming affiliations due to its limited trade name equity, as consumers tend to prefer well-known brands. Additionally, Wendys will struggle to diversify revenue sources, similar to McDonalds' success with movie merchandise deals. Consequently, revenue growth will rely solely on food sales.

Wherever Wendys opens a new eating house, there is usually a McDonalds or a Burger King nearby. However, the larger rivals would easily outperform Wendys in prolonged price competition as they attract more customers and generate higher profits.

In conclusion, our analysis shows that chili is a profitable item for Wendys and it is

recommended to continue serving it at their establishments. Failure to do so would result in a loss of revenue and profits from chili. If management successfully implements its operating objectives, Wendys could achieve steady growth in the future.

However, long-term success is not guaranteed, and the company must remain vigilant. Appendix A outlines common costs, which include shared expenses for installations and services. These costs encompass depreciation on furniture and fixtures, climate control expenses, as well as maintenance and repair expenditures.

To highlight a few, there are common costs that are not specific to an individual product or department. Conversely, joint costs are the costs incurred for manufacturing joint products until the split-off point. If we analyze the cost of land beef based on this distinction, we can conclude that it should be considered a joint cost. At Wendy's, the land beef cakes are placed on the grill during the hamburger making process.

In line with their hot and juicy product offerings, any unused cakes from the preparation of beefburgers within a certain time limit are cooked well-done and not suitable for serving as burgers. Instead, these well-done cakes are stored and used in making chili. Since the process leading up to placing the cakes on the grill is the same for both beefburgers and chili, the costs of the ground beef cakes are considered to be joint costs. This is the standard practice.

However, there are times when preparing chili requires grill-able raw ground beef cakes. During these times, the cost of the ground beef cakes must be allocated as direct costs in the preparation of chili. A byproduct of a manufacturing process is considered a product that

(1) is not easily identifiable until manufacturing reaches a split-off point and (2) has a relatively insignificant sales value compared to the main product. This is in comparison to hamburger sales at Wendy's.

Chili's gross revenues are not average, but they are still not considered exceptional. A joint product has two distinguishing characteristics: a high sales value and the inability to be identified as an individual product until the split-off point in the manufacturing process. Chili satisfies both of these criteria.

Chilis is considered a joint product because it uses cakes that are originally made for beefburgers in its preparation. If fresh beef cakes are grilled for making chili, it is no longer considered a joint product, although this rarely happens.

Until the cakes are grilled, it is not possible to distinguish whether they will be used for preparing beefburgers or chili. Only when the cakes are overcooked, they are stored for preparing chili in the following days. Therefore, chili should be treated as a joint product and the costs incurred until this point should also be considered joint costs. See Appendix B for information on other typical fixed expenses. The calculation of fixed operating expenses only includes wages paid to the staff employed at a store. These calculations assume that there is only one employee per category working 16 hours per day.
Rate Time Spent Amount
Store Manager (Per Week) $575.

00 1 Day $ 82. 143 Co-Manager ( Per Hour ) $ 6.50 16 $ 104.000 Adjunct Manager ( Per Hour ) $ 5.75 15.5 $ 89.

125 Management Trainee (Per Hour) $5.60 16 $89.600 Crew (Per Hour) $4.50 16 $72.000 Sub Total $436.

868 Taxes and Additional Expenses

( @ 10 % ) $ 43.
687 Entire $ 480.
555 Allotment to Chili ( @ 5 % ) $ 24.
028 Allocation per bowl of Chili** $ 0.180
Without sufficient information on how many employees are employed at a typical mercantile establishment we have to presume that there is merely one of each class.

Despite being somewhat far-fetched for the Crew figure, the computations show that even if their figure reaches 10, chili gross revenues would still remain profitable. The number of bowls of chili sold per day has been determined based on the Annual Gross Sales per restaurant, assuming that chili continues to contribute 5% to the overall sales of the establishment, as it did in the 1970s. The average Gross Sales per Restaurant is 966.

000. 00 Chili Gross sales in $ (5% of Gross sales) 48. 300. 00 No. of Bowls Sold annually 48.

The number of bowls sold per twenty-four hours is 787.88. In Appendix C, it is outlined in Table 12-4 that beef is the single largest cost in making chili. Hence, the monetary value of beef holds significant importance.

The critical cost driver for chili in the cost accounting system is the monetary value of beef. Therefore, an increase in the monetary value of beef will directly raise the cost of making chili. Ideally.

The goal is to increase the monetary value of chili by increasing the monetary value of any natural ingredients used. However, this may be challenging. The calculated percentage of chili's border is 45.8%, while the net border is 27.

Our goal is to keep the company's profit intact even with small increases in the price of beef, which

we consider to be a healthy percentage. However, if there is a significant increase in beef prices, management will need to assess the impact on demand, as well as the demand for competitor products. It is important to carefully consider market factors before implementing a price increase to offset higher input costs. At Wendy's, chili sales have a slight seasonal pattern, with 60% of annual chili sales occurring from October to March.

During these months, there is a higher demand for grilling fresh ground beef patties specifically for making chili. This increased likelihood of grilling fresh patties comes with an extra cost of energy (cooking gas) and the need for chefs to use patty-making machines. These additional costs can be avoided if there is a sufficient stock of pre-cooked beef patties. While there may be a slight chance of increased costs during this time, it is not advisable to change the price of chili because pricing decisions are made centrally at Wendy's headquarters and the demand for grilling extra beef patties may not be consistent across all locations.

The best approach would be to manage these additional expenses as shared costs and allocate them to the cost of chili at a standard rate. Land beef is the primary component of both chili and beefburgers at Wendy's, making it essential to accurately determine the cost of the beef patties in order to assess the profitability of chili and beefburgers. The cost of land beef patties should encompass all material costs, labor costs, and other direct expenses up until the cooking process. Material costs would encompass the cost of raw beef.

The mixture has condiments and cooking oil added. Labor

costs should include the time it takes to set the mixture in the patty machine and cook the cake for a beefburger or chili (any additional time is not value adding activity). Other expenses related to the cakes include the cost of power to operate the patty machine.

Gas expenditures are needed to fuel the grill, as well as costs for depreciation on the grill and patty machine. By combining all these expenses, the average cost of a ground beef patty can be determined.

The cost of preparing chili and beefburgers remains the same, regardless of the additional cost of cooking cakes for the chili. This information is crucial, as it allows for easy determination of the profitability of these items after factoring in the costs of other ingredients and related expenses. Calculating the cost of one serving is essential in determining the selling price of a bowl of chili.

To achieve this, we should implement the absorption costing technique where all expenses are allocated to the product. This is different from the marginal costing method, which only considers variable costs in its calculation. The actual cost of a bowl of chili would include costs related to direct materials and labor charges.

There is a percentage of fixed operating expense that is allocated to the cost of fixing chili. This includes expenses related to rent, among others.

The expenses include electricity, wages, depreciation on equipment, and public-service corporation charges. Utilizing absorption costing is advantageous as it ensures all costs are recovered in the long run to maintain competitiveness in business. In conclusion.

Even though fixed costs change when the end product is beyond the intended range, it is wise to assume

that all costs are variable in the long run. In order to determine the selling price of a bowl of chili, Wendys should use a cost plus pricing formula.

By lowering a grade, the chili company can increase their profits from the sale of chili. This increase should be represented as a percentage of absorption costs.