chapter 12 pricing - georgia state university - georgia · ppt file · web...
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CHAPTER 12 PRICING
PRODUCT CONTRIBUTION
MENU ENGINEERINGBREAK-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 ANALYSISITEM 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 ANALYSISITEM 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 ENGINEERINGMENU ENGINEERING IS A MARKETING
ORIENTED APPROACH TO EVALUATE CURRENT AND FUTURE MENU PRICING, DESIGN, AND MENU CONTENT
USES SALES MIX AND PRICINGMENU 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 ELEMENTSCUSTOMER DEMANDMENU MIXCONTRIBUTION ANALYSIS
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CLASSIFICATIONS
STARSPLOW HORSESPUZZLESDOGS
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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 $ .59CALCULATED AS FOLLOWS:$8100.23 DIVIDED BY 13,658
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MENU ENGINEERINGSTEP 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 ANALYSISEACH MENU ITEM IS PLOTTED WITH
A QUADRANT OF A GRAPH ACCORDING TO THE FOLLOWING:
MENU MIXCONTRIBUTION MARGIN
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QUADRANT ANALYSIS
CONTRIBUTION MARGIN
MENU MIX %
PLOW HORSE
DOG
STAR
PUZZLE10 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 NEEDEDFIXED COSTVARIABLE COST
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FIXED AND VARIABLE COSTSFIXED COST VARIABLE COST
FOOD FOODCHEMICALS CHEMICALSRENT
RENT
INSURANCE
INSURANCE
LABORLABOR
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 $1,200COMM 5%PAPER 4%CLEANING $10.00TELEPHONE $2.00OFFICE SUPPLIES $2.00ADV & PRMO 3%
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PROBLEM #1
FIXED COSTLABOR $1,200CLEANING$10TELEPHONE $2OFFICE $2 $1,214
•VARIABLE COST•COMM 5%
•PAPER 4%
•FOOD 39.9%
•ADV 3%
51.9%
$1,214.00100% - 51.9%
= $2,523.91
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PROBLEM #2 DETERMINE BEP IN SALES
FOOD 39.9%LABOR $1,200COMM 5%PAPER 4%CLEANING $10.00TELEPHONE $2.00OFFICE SUPPLIES $2.00ADV & PRMO 3%PROFIT OF 10%
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PROBLEM #2
FIXED COSTLABOR $1,200CLEANING$10TELEPHONE $2OFFICE $2 $1,214
•VARIABLE COST•COMM 5%
•PAPER 4%
•FOOD 39.9%
•ADV 3%
•PROFIT 10%
61.9% $1,214.00100% - 61.9%
= $3,186.35
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PROBLEM #3 DETERMINE BEP IN SALES
FOOD 39.9%LABOR $1,200COMM 5%PAPER 4%CLEANING $10.00TELEPHONE $2.00OFFICE SUPPLIES $2.00ADV & PRMO 3%PROFIT OF $500
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PROBLEM #3FIXED COSTLABOR $1,200CLEANING$10TELEPHONE $2OFFICE $2PROFIT $500 $1,714
•VARIABLE COST•COMM 5%
•PAPER 4%
•FOOD 39.9%
•ADV 3%
51.9%
$1,714.00100% - 51.9% = $3,563.41
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GRAPH VIEW OF BEPA
FIXED COST
VARIABLE COST
TOTAL COST
SALES
.BEP
PROFIT