Question

As an employee, write an internal memo to your manager addressing the following:

1. For your assigned type of business, RESTAURANTS, identify the factor that you believe is most likely to limit potential output capacity.

2. Suggest several ways (other than raising prices) the business can maximize the contribution margin per unit of this limiting resource. (Hint: These businesses often do implement the types of strategies you are likely to suggest. Thus, your solution to this case may explain basic characteristics of businesses that you personally have observed.)

Answer 1

1. The factor that limit potential output capacity is labour and material.

The non-availability of labour and material often is the reason why restaurants are not able to achieve the potential output capacity.

2. Several ways business can maximize the contribution margin per unit:-

a. Reduce the wastage of limited materials. Or to use the waste material of one item to prepare some other item.

b. Try to make the items in bulk for which less material will be required and costs like gasoline, electricity will be reduced.

c. Look out for the available cheaper goods of materials which are the substitutes for the older materials.

d. To convert the labour on hourly based rather than salary based.

e. Use EOQ (Econimic order Quantity) techniques to order material and other items required for preparation of various items.