CHEF’S RESTAURANT

In a restaurant, wide variety foods are offered to the customers. To suit the needs of
the locality, the restaurant work from 9:00am to 1:00pm and 4:00pm to 8:00pm. The
restaurant is famous for its food stuffs. The items that are served can be categorized as:

(a) Those involving preparation time of 1/2 hour or more.

(b) Those require about 5 to 10 minutes for preparation.
(c) Those packed/canned, which does not require any preparation time.

Stuff that has not been consumed in any one day are scrap and cannot be stored for use on the
next day. Materials required for (a) and (b) have to be ordered a day in advance and delivery
is required in the morning, while delivery for packed/canned food is usually made in the
afternoon. A certain amount of cold storage at the restaurant is available, and the
management is prepared to expand the facility, if necessary.

How would you use Production Planning and Control procedure to:

(a) Study Customers preferences and demand patterns?

(b) Determine the number of foodstuff the restaurant should plan under each category
to ensure of maximum Customer satisfaction and minimum scrap.
(c) Exercise a control function to provide effective waitresses service?

Use valid assumptions to conclude meaningful results.

Solution for Chef’s Restaurant Case:

1. Identify the available data for case analysis.
 2. Prepare valid assumptions in order to conclude meaningful results.

The group decided to use cost-volume-profit analysis (CVP) tool to study the case and to
conclude with meaningful results. Reasonable assumptions for selling price per unit, assigned
cost of goods sold rate, allowance for scrap and target gross profit were all considered in
CVP analysis.
Fixed monthly cost and corresponding daily expenses were summarized below:
Given the store operating hours, valid assumptions for customers’ foot traffic and sales
distribution percentage were also identified. The operating hours is nine (9) hours per day and
the management decides to have at least two (2) shift with one (1) hour of overtime.

3. Prepare valid assumptions in order to conclude meaningful results.

Customer preference & demand on each valid assumption:
a. Sales Mix is 50% by 30% by 20%. It means that 50% prefers Product A, 30%
prefers Product B and 20% prefers Product C.
b. Sales Mix is 30% by 20% by 50%. It means that 30% prefers Product A, 20%
prefers Product B and 50% prefers Product C.
c. Sales Mix is 20% by 50% by 30%. It means that 20% prefers Product A, 50%
prefers Product B and 30% prefers Product C.
Based on assumption A, daily target sales of P100,000 will result a net income of P41,404.48 and
required inventory purchases is P55,000.00. Average cost of goods sold is 43% and gross profit rate
is 57%.
Based on assumption B, daily target sales of P100,000 will result a net income of P39,904.48 and
required inventory purchases is P79,500.00. Average cost of goods sold is 49.50% and gross profit
rate is 50.50%.
Based on assumption C, daily target sales of P100,000 will result a net income of P36,904.48 and
required inventory purchases is P65,500.00. Average cost of goods sold is 47.50% and gross profit
rate is 52.50%.

4. Prepare summary of findings, interpret the result and make recommendations:

Most favorable to the restaurant is Assumption A with the sales mix of 50% for Product A,
30% for Product B and 20% for Product C based on customer preference and demand. The
average cost of goods sold is only 43% that yield a higher gross profit and net income. The
required inventories are lower which also means minimum scrap cost. With higher net
income and less amount for daily purchases, cash will be readily available for future
expansion without borrowing from the banks which will incur additional interest expense.