Question

We, as consumers, have become quite spoiled by the food service industry catering to our desire to get our meals exactly the way we want them. Many counter service or "fast casual" restaurant chains like Subway, Chipotle, Five Guys, Yogurtland, Shake Shack, and Zoe's Kitchen are making our meals to order (or allowing us to do so in the case of some of the yogurt restaurants) while we wait. In this type of business model, food is generally less processed and sometimes locally sourced. Because the food is fresher, fast casuals charge more for meals—averaging $7-15 per meal. What these restaurants do save money on is labor—they have no wait staff or hosts/hostesses. As a result, from an accounting perspective, the costs incurred for the raw materials inventory could likely be among the higher expenditures the restaurant would have every month.

Using what you know about how these types of restaurants operate (menu offerings and add-ons, service model, etc.) and what you have learned about job-order costing and process order costing, please identify which costing system you would implement if you owned one of these types of "made to order" restaurants. What would be some of the considerations you would use to make your decision? Include at least one challenge you would need to overcome from implementing the system you chose.

Answer 1

Job- order costing is relevant when the cost for a particular batch has to be determined instead of each single unit.

Process costing is used when a company produces the exact same type of product .

Considering the nature of made to order restaurants, each subway or say burger is customized and not the similar to the last one produced.

Even the veggies are restocked and kept fresh every single day , so it is more logical to use job costing where in the cost to serve number of customers in a day can be determined.

This will help in proper allocation of raw material and labour.

Example: Subway calculates the cost of serving 50 customers.

A major challenge in using job costing would be that if the company wants to know the profitability of an individual new food product, that will be difficult to determine since a predetermined overhead rate shall be used to allocate overall expenses.