1. For this question only, assume that most of Chipotle's costs are variable. Provide one reason why this particular company organized itself so that operating leverage would be low. Your answer must include the phrase 'business risk'.

2.

In 2011, the Company began the Chipotle Cultivate Foundation. Each day across most of their restaurants, they use food from their restaurants and donate it to local nonprofit feeding partners. Assume that in fiscal year 2017, the food donated are ingredients that could be used in a menu item that is priced at $6.50. The cost of the menu item is $4.89 and includes the following: $2.23 for food ingredients; $0.48 for leased space; $1.75 for labor costs; and $0.43 for other general and administrative costs.

a. How much does income differ as it relates to each meal as the result of the Company giving away food it could otherwise sell each time it gives away food? Ignore tax implications. Round your answer to 2 decimal places.

b. How much does income differ as it relates to each meal as the result of the Company giving away surplus food - that is, food that it could not sell - each time it gives away food? Ignore tax implications. Round your answer to 2 decimal places.

3. Refer to the grid on the next page. As it relates to: OPM% (Income from operations/Sales) and CM% (Contribution margin/Sales) indicate whether each item is likely to INC?Increase; DEC?Decrease, or have NE?No Effect. As it relates to PV (food price variance or labor rate variance) or QV (food quantity variance or labor efficiency variance) indicate whether the variance is U - Unfavorable; F - Favorable; or has NE - No Effect. Assume the Company uses flexible budgeting. Use the information in the sales volume (SV) and sales price (SP) columns to determine how the other categories are affected. Do not make any assumptions. The first entry provides an example.

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CATEGORY SV SP OPM% CM% PV QV NE NE DEC DEC U NE NE DEC NE Example: Beef prices increased during the year. Beef is included in a number of menu items. a. The state of California, New York City and a number of other jurisdictions around the U.S. have adopted regulations requiring chain restaurants to include calorie information on their menu boards. This regulation went into effect during 2017. Adhering to this regulation increased expenses and decreased throughput as customers moved more slowly through the line to decide which meal to purchase (this did not change total hours worked) The Company did not include this in thier budget for 2017. How did this impact the Company in 2017? b. During 2015, illnesses caused by E. coli bacteria were connected to a number of restaurants. The Company disposed of some of its inventory due to the E. coli outbreak. The Company did not include this in their fiscal year budget for 2015. How did this impact the Company in 2015? c. Chipotle had an unusual number of restaurant managers turnover in 2016. As a result, new managers did not schedule restaurant crews efficiently and restaurants were frequently overstaffed as compared to the prior year. The Company did not include this in thier budget for 2016. How did this impact the Company in 2016? d. During 2010, the Department of Homeland Security audited Chipotle's work authorization documents of restaurant employees in Minnesota. As a result of the audit, Chipolte lost 450 employees because, according to US law, these employees were unauthorized to work. This resulted in a temporary increase in labor costs and disruption in operations including slower throughput, as Chipotle trained new employees. The Company did not include this in thier budget for 2010. How did this impact the Company for 2010? e. During 2017, Chipotle's information security team detected authorized activity on the network that supports payment processing at their restaurants. Their investigation detected malware designed to access payment card data from cards used at point of sale devices at most Chipotle restaurants. They expect to incur regulatory fines and penalities, for which thier insurance coverage is limited. They recorded a $30 million liability. NE NE NE NE NE NE NE CATEGORY SV SP OPM% CM% PV QV NE NE DEC DEC U NE NE DEC NE Example: Beef prices increased during the year. Beef is included in a number of menu items. a. The state of California, New York City and a number of other jurisdictions around the U.S. have adopted regulations requiring chain restaurants to include calorie information on their menu boards. This regulation went into effect during 2017. Adhering to this regulation increased expenses and decreased throughput as customers moved more slowly through the line to decide which meal to purchase (this did not change total hours worked) The Company did not include this in thier budget for 2017. How did this impact the Company in 2017? b. During 2015, illnesses caused by E. coli bacteria were connected to a number of restaurants. The Company disposed of some of its inventory due to the E. coli outbreak. The Company did not include this in their fiscal year budget for 2015. How did this impact the Company in 2015? c. Chipotle had an unusual number of restaurant managers turnover in 2016. As a result, new managers did not schedule restaurant crews efficiently and restaurants were frequently overstaffed as compared to the prior year. The Company did not include this in thier budget for 2016. How did this impact the Company in 2016? d. During 2010, the Department of Homeland Security audited Chipotle's work authorization documents of restaurant employees in Minnesota. As a result of the audit, Chipolte lost 450 employees because, according to US law, these employees were unauthorized to work. This resulted in a temporary increase in labor costs and disruption in operations including slower throughput, as Chipotle trained new employees. The Company did not include this in thier budget for 2010. How did this impact the Company for 2010? e. During 2017, Chipotle's information security team detected authorized activity on the network that supports payment processing at their restaurants. Their investigation detected malware designed to access payment card data from cards used at point of sale devices at most Chipotle restaurants. They expect to incur regulatory fines and penalities, for which thier insurance coverage is limited. They recorded a $30 million liability. NE NE NE NE NE NE NE