product contribution menu engineering break-even...
TRANSCRIPT
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CHAPTER 12 PRICING
PRODUCT CONTRIBUTION
MENU ENGINEERING BREAK-EVEN ANALYSIS
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PRODUCT CONTRIBUTION
IDENTIFIES WHETHER YOUR MENU PRICES ARE HIGH ENOUGH TO ENSURE THAT THE AMOUNT REMAINING AFTER ALL VARIABLE COSTS HAVE BEEN SUBTRACTED IS SUFFICIENT TO COVER YOUR FIXED EXPENSES INCLUDING PROFIT.
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PRODUCT CONTRIBUTION ANALYSIS ITEM ITEM COST OTHER COST PROD COST SELL PRICE % COST GROSS MAR COMM CONT $ CONT %
SMALL SODA 0.14 0.07 0.21 0.89 23.6% 0.68 0.11 0.57 64.4%MED SODA 0.18 0.07 0.99
LARGE SODA 0.28 0.07 0.35 1.09 32.1% 0.74 0.13 0.61 55.9%SMALL TEA 0.08 0.09 0.17 0.89 19.1% 0.72 0.11 0.61 68.9%
MED TEA 0.1 0.09 0.99LARGE TEA 0.16 0.09 0.25 1.09 22.9% 0.84 0.13 0.71 65.1%
SMALL COFFEE 0.08 0.11 0.19 0.55 34.5% 0.36 0.07 0.29 53.5%MED COFFEE 0.11 0.11 0.65
LARGE COFFEE 0.15 0.12 0.27 0.75 36.0% 0.48 0.09 0.39 52.0%
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PRODUCT CONTRIBUTION ANALYSIS ITEM ITEM COST OTHER COST PROD COST SELL PRICE % COST GROSS MAR COMM CONT $ CONT %
SMALL SODA 0.14 0.07 0.21 0.89 23.6% 0.68 0.11 0.57 64.4%MED SODA 0.18 0.07 0.25 0.99 25.3% 0.74 0.12 0.62 62.7%
LARGE SODA 0.28 0.07 0.35 1.09 32.1% 0.74 0.13 0.61 55.9%SMALL TEA 0.08 0.09 0.17 0.89 19.1% 0.72 0.11 0.61 68.9%
MED TEA 0.1 0.09 0.19 0.99 19.2% 0.8 0.12 0.68 68.8%LARGE TEA 0.16 0.09 0.25 1.09 22.9% 0.84 0.13 0.71 65.1%
SMALL COFFEE 0.08 0.11 0.19 0.55 34.5% 0.36 0.07 0.29 53.5%MED COFFEE 0.11 0.11 0.22 0.65 33.8% 0.43 0.08 0.35 54.2%
LARGE COFFEE 0.15 0.12 0.27 0.75 36.0% 0.48 0.09 0.39 52.0%
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PRODUCT CONTRIBUTION ANALYSIS PIZZA
INGREDIENTS COST SELLING PRODUCT GROSS COMM CONT. $ %PRICE COST MARGIN 12%
DOUGH 0.49SAUCE 0.13
CHEESE 0.84PEPPERONI 0.57
PLATE 0.68MORNAP 0.09
TOTAL COST 2.8 $10.00 28.0% $7.20 $1.20 $6.00 60.0%COST PORTION 0.35 $1.50 23.3% $1.15 $0.18 $0.97 64.7%
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PRODUCT CONTRIBUTION ANALYSIS CHEESE STEAK
INGREDIENTS COST SELLING PRODUCT GROSS COMM CONT. $ %PRICE COST MARGIN 12%
MEAT 0.68CHEESE 0.18PEPPERS 0.08ONIONS 0.06
ROLL 0.12WRAP 0.06
TOTAL COST
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PRODUCT CONTRIBUTION ANALYSIS CHEESE STEAKINGREDIENTS COST SELLING PRODUCT GROSS COMM CONT. $ %
PRICE COST MARGIN 12%MEAT 0.68
CHEESE 0.18PEPPERS 0.08ONIONS 0.06
ROLL 0.12WRAP 0.06
TOTAL COST 1.18 $3.29 35.9% $2.11 $0.39 $1.72 52.1%
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MENU ENGINEERING MENU ENGINEERING IS A MARKETING
ORIENTED APPROACH TO EVALUATE CURRENT AND FUTURE MENU PRICING, DESIGN, AND MENU CONTENT USES SALES MIX AND PRICING MENU ENGINEERING IGNORES THE
QUESTION “WHAT IS A SATISFACTORY FOOD COST ?” AND ASKS INSTEAD “ARE WE GETTING A REASONABLE CONTRIBUTION TO PROFIT FROM THE SALES MIX?”
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MENU ENGINEERING
THREE ELEMENTS CUSTOMER DEMAND MENU MIX CONTRIBUTION ANALYSIS
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CLASSIFICATIONS
STARS PLOW HORSES PUZZLES DOGS
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MENU ENGINEERING
STEP ONE FIND THE AVERAGE CONTRIBUTION MARGIN THE AVERAGE CONTRIBUTION
MARGIN IS CALCULATED BY DIVIDING THE TOTAL MENU CONTRIBUTION MARGIN BY THE NUMBER OF ITEMS SOLD
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MENU ENGINEERING
LOOK AT EXAMPLE #1 THE AVERAGE CONTRIBUTION
MARGIN IS $ .59 CALCULATED AS FOLLOWS: $8100.23 DIVIDED BY 13,658
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MENU ENGINEERING STEP 2 IS TO CLASSIFY THE MENU MIX AS
HIGH OR LOW. TO DO THIS USE THE FOLLOWING
FORMULA: (100/#OF ITEMS ON MENU] X 70% IN THIS EXAMPLE THERE ARE 22 MENU
ITEMS (100/22) X .7 = 3.2% ITEMS WHOSE MENU MIX IS GREATER THAN
3.2% ARE CLASSIFIED AS HIGH AND THOSE LESS THAN 3.2% ARE CLASSIFIED AS LOW
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MENU ENGINEERING
QUADRANT ANALYSIS EACH MENU ITEM IS PLOTTED WITH
A QUADRANT OF A GRAPH ACCORDING TO THE FOLLOWING: MENU MIX CONTRIBUTION MARGIN
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QUADRANT ANALYSIS
CONTRIBUTION MARGIN
MENU MIX %
PLOW HORSE
DOG
STAR
PUZZLE 10 20 30 40 50 60 70 80 90 100
2%
4%
6%
8%
10%
12%
14%
16%
• SMALL SODA
• OCEAN SPRAY
• LARGE SODA
• HOT COCO
• SM. COFFEE
• SM. TEA
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BREAK EVEN SALES ANALYSIS
BREAK EVEN SALES ANALYSIS IS THE POINT IN SALES OR UNITS NEEDED TO SHOW NO LOSS OR PROFIT. INFORMATION NEEDED FIXED COST VARIABLE COST
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FIXED AND VARIABLE COSTS FIXED COST VARIABLE COST
FOOD FOOD CHEMICALS CHEMICALS RENT
RENT
INSURANCE
INSURANCE
LABOR LABOR
COMMISSIONS
COMMISSIONS
• FIXED COST IS IN $$$
• VARIABLE COST IS IN %%%%
REMEMBER
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BREAK EVEN SALES ANALYSIS
FORMULA FOR BEP IN SALES
TOTAL FIXED COST (100% - TOTAL VARIABLE COST)
DO PROBLEM #1
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PROBLEM #1 DETERMINE BEP IN SALES
FOOD 39.9% LABOR $1,200 COMM 5% PAPER 4% CLEANING $10.00 TELEPHONE $2.00 OFFICE SUPPLIES $2.00 ADV & PRMO 3%
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PROBLEM #1
FIXED COST LABOR $1,200 CLEANING $10 TELEPHONE $2 OFFICE $2 $1,214
•VARIABLE COST •COMM 5%
•PAPER 4%
•FOOD 39.9%
•ADV 3%
51.9%
$1,214.00 100% - 51.9%
= $2,523.91
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PROBLEM #2 DETERMINE BEP IN SALES
FOOD 39.9% LABOR $1,200 COMM 5% PAPER 4% CLEANING $10.00 TELEPHONE $2.00 OFFICE SUPPLIES $2.00 ADV & PRMO 3% PROFIT OF 10%
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PROBLEM #2
FIXED COST LABOR $1,200 CLEANING $10 TELEPHONE $2 OFFICE $2 $1,214
•VARIABLE COST •COMM 5%
•PAPER 4%
•FOOD 39.9%
•ADV 3%
•PROFIT 10%
61.9%
$1,214.00 100% - 61.9%
= $3,186.35
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PROBLEM #3 DETERMINE BEP IN SALES
FOOD 39.9% LABOR $1,200 COMM 5% PAPER 4% CLEANING $10.00 TELEPHONE $2.00 OFFICE SUPPLIES $2.00 ADV & PRMO 3% PROFIT OF $500
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PROBLEM #3 FIXED COST LABOR $1,200 CLEANING $10 TELEPHONE $2 OFFICE $2 PROFIT $500 $1,714
•VARIABLE COST •COMM 5%
•PAPER 4%
•FOOD 39.9%
•ADV 3%
51.9%
$1,714.00 100% - 51.9% = $3,563.41
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GRAPH VIEW OF BEPA
FIXED COST
VARIABLE COST
TOTAL COST
SALES
. BEP
PROFIT