As Jim Hennessey, FS director, thinks back over the past few months he is pleased to see the improvement the Memorial Hospital Food and Nutrition Services is finally beginning to show on Press Ganey scores for patient feeding. Now it is time to turn his attention and focus to the staff/visitor cafeteria. Jim reviews his profit and loss statement and sees that food costs for the past two months have increased from 40 percent of revenue (his guideline) to 42.5 percent. One recommendation made by Chef Ralph Jeffries is to offer rotisserie chicken to increase sales in the cafeteria. Ralph would purchase five-pound broilers (at $1.08 per pound) and prepare them in a rotisserie placed directly on the serving line in the cafeteria. The cook would quarter the chickens right in front of the customer who would be enticed by both the sight and smell. Ralph estimates they could sell eighty portions a day. Average labor cost is $ 16.00 per hour; Ralph calculate it would take about one hour of prep time for every batch of twenty chickens, which would include prepping the chicken and loading and cleaning the rotisserie. In addition, he approximates another two minutes of labor per chicken quarter to remove it from the rotisserie, portion it, and serve it. Using an operating margin of 52 percent, Ralph would like to charge $ 4.00 per portion. Jim is questioning the price since they usually use the markup factor to determine price and this would be quite different. More so, he wonders if spending $12,500 on a new rotisserie would really gie him a return on his money. As hes mulling this over Jim attends his regular meeting with Linda Bolton, clinical nutrition manager. Like Jim, Linda is pleased that Press Ganey scores are increasing for patient food services but continues to look for ways to increase food quality, especially for patients on modified diets. Shes just completed a nutritional analysis of the current heart healthy/prudent menu and finds that it only provides 23 percent calories from fat, inconsistent with the current ATP III guidelines and also the recommendation to increase MUFAs. The diet is also very low in fiber at 20 grams. Linda recommends a change to olive oil in all food preparation and an increase in fresh fruit and vegetable selections. Jim responds shaking his head, Show me the money!

1. What would be the effect of pricing all items using prime cost vs. the factor method?