Solution for McGraw-Hill's Taxation of Individuals and Business Entities 7th Edition Chapter 10, Problem 1

by Brian Spilker, Benjamin Ayers, John Robinson, Edmund Outslay, Ronald Worsham, John Barrick, Connie W
758 Solutions 19 Chapters 34350 Studied ISBN: 9781259334870 Taxation 5 (1)

Chapter 10, Problem Discussion_Questions 1 : 1. Thinking about the business variables of food...

1. Thinking about the business variables of food and beverage cost, labor cost, guest check average, and sales volume, what would happen to the financial picture of a quick-service operation if sales volume drops? Using the variables, describe how you could solve the problem.

This exercise along with question 2 can be done in a small group. Students should reference pages 298 – 300 as they develop their answer.

Step-By-Step Solution

1. It is important to understand that each type of foodservice operation has a specific business

―recipe‖ that spells profitability. Like the recipe for a menu item, the ―business recipe‖ is made up of a common set of ―ingredients‖ or variables that distinguishes one segment from the next and is a basis for understanding how each makes a profit in the competitive world of foodservice management. These ―ingredients‖ or variables are:

Sales volume

Food and beverage cost percentage

Guest check average

Labor cost

Fast food operations hire people with limited skills at minimal pay to prepare menu items often with frozen, ready-to-serve products that are inexpensively priced but have a high per-unit cost. In the front of the house, guest energy is used to place orders, pick up food, and clear tables after eating. Generally, this type of operation experiences high-volume sales. So, to be profitable in the quick-service/fast casual business segment, an operation needs the right combination of:

High volume

High portion cost in relation to selling price

Low guest check

Low labor cost

Any time these business profile descriptors are anything other than what is ―normal‖ for that business segment, then the operation is likely to be unprofitable or, at the least, not at targeted profit levels.


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