Wendy's Chili Costing
Wendy’s Chili
3/3/2015
Andrea Rodgers
1. Does the cost of chili vary with the seasons? If so, should the price vary accordingly? Explain.
The cost of chili does vary by season. Because in some seasons it is more likely that Wendy’s restaurants will have to utilize beef patties that were not “waste” from unused hamburger patties, the cost of chili would be higher during these seasons. Of course, this assumes that the beef patties that are being used for chili that are “waste” from the hamburgers are not being counting in chili cost because they’ve already been counted in hamburger cost.
Although the cost of chili varies, it is inadvisable to change the price accordingly. In markets besides fast food, this may be appropriate. However, a staple customer value provider for fast food chains is consistency. Customers always know what they are getting whether they go to a Wendy’s in California or New York. Therefore, it is likely that the cost of disrupting that consistency in order to vary the price of chili with the cost would be too high to justify the increase in profits.
2. When ground beef prices increase, does the cost of making Wendy’s chili increase? If so should Wendy’s increase the selling price of its chili? Explain.
The extent to which the cost of making Wendy’s chili increases as the price of beef increases depends on whether you consider the beef “leftovers” as waste for the hamburgers (and therefore as a ‘free’ ingredient) or as a cost for the chili.
Regardless, 10% of the time they are forced to use non-leftover beef for the chili. Therefore, the increased price of beef will increase the price of chili for Wendys. In addition, this 10% the additional steps needing to be undertaken to prepare the non-leftover beef constitute a labor cost.
Assuming that only 10% of the time, the ground beef cost is borne by the chili, the cost associated with the additional labor can be allocated into every batch of chili at a rate of 10%. For simplicity sake, I
3/3/2015
Andrea Rodgers
1. Does the cost of chili vary with the seasons? If so, should the price vary accordingly? Explain.
The cost of chili does vary by season. Because in some seasons it is more likely that Wendy’s restaurants will have to utilize beef patties that were not “waste” from unused hamburger patties, the cost of chili would be higher during these seasons. Of course, this assumes that the beef patties that are being used for chili that are “waste” from the hamburgers are not being counting in chili cost because they’ve already been counted in hamburger cost.
Although the cost of chili varies, it is inadvisable to change the price accordingly. In markets besides fast food, this may be appropriate. However, a staple customer value provider for fast food chains is consistency. Customers always know what they are getting whether they go to a Wendy’s in California or New York. Therefore, it is likely that the cost of disrupting that consistency in order to vary the price of chili with the cost would be too high to justify the increase in profits.
2. When ground beef prices increase, does the cost of making Wendy’s chili increase? If so should Wendy’s increase the selling price of its chili? Explain.
The extent to which the cost of making Wendy’s chili increases as the price of beef increases depends on whether you consider the beef “leftovers” as waste for the hamburgers (and therefore as a ‘free’ ingredient) or as a cost for the chili.
Regardless, 10% of the time they are forced to use non-leftover beef for the chili. Therefore, the increased price of beef will increase the price of chili for Wendys. In addition, this 10% the additional steps needing to be undertaken to prepare the non-leftover beef constitute a labor cost.
Assuming that only 10% of the time, the ground beef cost is borne by the chili, the cost associated with the additional labor can be allocated into every batch of chili at a rate of 10%. For simplicity sake, I