BELAIR BISTRO Belair Bistro is a French bistro located in Toronto. The Bistro is essentially made up of a sit-down area with service and a daily menu for lunch and dinner while the front of the bistro is a take-out bakery and cafe. The manager of the Bistro. Mr. Gabriel. is contemplating some important business decisions for the bistro and came to you for assistance in determining what costs are relevant to making these decisions. SITUATION I: KEEP OR DROP A PRODUCT! SEGMENT For the past two years. Belair has been operating an online platform through their website that allows customers to place orders online and have the food delivered to them within 45 minutes. The orders are then prepared in the same kitchen by the same staff operating the restaurant. The order is then delivered by a delivery person with the Belair Bistro motorcycle that was purchased for this segment. The online delivery platform is managed from a small ofce located at the back of the restaurant Belair's manager. Mr. Gabriel. is considering dropping this segment as he believes it is not protable. The maintenance of the IT platform has been expensive. and he also believes that the online orders take up a significant portion of his time while making up a small portion of the revenues. Gabriel believes his time could be put to better use with other projects and initiatives for the Bistro as well as managing the current opeIations. Gabriel indicates that staff turnover has been higher this past year and he feels partly responsible as he has not been able to be very involved with supervising and coaching the staff. The feedback on the online the platform has been good and he noted that many new customers of the cafe indicated that they discovered the cafe after they saw the website and ordered delivery from the online platform. Gabriel provides you with the following nancial information of the Bistro and asks you to help him decide whether they should keep or drop the online delivery segment. Additional information about the resnumnt and the online delivery segment is provided on the next page. REQUIRED: I. Identify the relevant costs to the keep or drop decision and prepare a computation of the lossa'gain that would result from dropping the online segment. 2. What qualitative factors would you consider in this decision? FINANCIAL INFORMATION - BELAIR BISTRO BELAIR BISTRO - SEGMENTED INFORMATION FOR THE YEAR ENDING 20XX TOTAL BISTRO CAFE ONLINE/DELIVERY Sales 1,675,250 1,125,000 341,250 209,000 Variable Costs 1,060,500 689,000 204,700 166,800 Contribution Margin 614,750 436,000 136,550 42,200 CM % 37% 39% 40% 20% Fixed Expenses Salaries 226,850 189,250 25,600 12,000 Advertising 10,000 7,500 2,500 Utilities 24,500 18,375 3,675 2,450 Depreciation $5,000 41,250 8,250 5,500 Insurance - Building 12,000 9,000 1,800 1,200 Manager Salary 70,000 42,000 10,500 17,500 IT Maintenance - Delivery Platform 16,000 16,000 200,400 128,625 86,725 (14,950) Note I: The Salaries and Advertising expenses are direct and traceable costs of each segment. Note 2: These common fixed costs were allocated based on the proportion of the square footage of the building occupied by each segment. The Insurance pertains to the building while the depreciation is the total of the depreciation for the building (50%), kitchen equipment (35%) and the motorcycle (1 0%). Note 3: Gabriel indicated that he estimates he spends 60% of his time working at the Bistro, 15% for the cafe, and 25% for the online delivery platform. His salary was allocated based on this basis. ADDITIONAL INFORMATION ABOUT THE RESTAURANT & ALLOCATION BASIS: Plan of the restaurant: KITCHEN BACK OFFICE 10 % of square footage BISTRO CAFE 75 % of square footage 15 % of square footage MAIN ENTRANCE As the kitchen is shared between all 3 units, the % of square footage was computed based on the relative proportion of all 3 segments, excluding the kitchen.SITUATION 2 MAKE OR BUY A PRODUCT Pierre. the pastry chef of Belair Bistro indicates that he has been approached by Le Louvre Bakery. Le Louvre indicated d1at they could bake all the ISO croissants the cafe needs daily for a cost of $ l.l5 per croissant. Pierre is considering this oer as croissants are very time consuming. They take on average 3 hours of his time to make each morning. He feels that he could use this time to make some pies and cakes that can be sold at the cafe. Pierre has summarized the information from the offer below: Offer from Le Louvre: I To bake l50 croissants each day at $ I. IS per unit. 0 A daily delivery charge of $40 would be applied. 0 Any change to the quantity ordered needs to be communicated at least 48 hours In advance. A change in the order quantity would result in a Si 5 administrative charge. 0 The current terms are valid for l year. at which point the contract can be renegotiated. The current direct materials of making the croissants is $0.95. The variable costs associated with the croissants are estimated at l0 cents per croissant. Pierre is not paid on an hourly basis. so cutting the croissant line would not affect the salary expense. Pierre believes that he could make 25 pies with the time he would save by no longer making croissants. On average. the pies would provide a contribution margin of $3.5 per pie. Pierre is very excited about this opportunity as he feels that making pies allows him to be much more creative than making croissants. Pierre also indicated that the croissants use a special oven that could be sold as it would no longer be needed. The oven was purchased six years ago for $8.500. However. as there is not a large re-sale market for used bakery stoves. Pierre estimates that they could only get $2.500 if they sold it today. REQUIRED: I. Identify the relevant costs to the make or buy decision of the croissants. Prepare a computation to identify the gain i loss that would result from outsourcing the croissant production to Le Louvre. 2. What qualitative factors would you consider in this decision? SITUATION 3A UTILIZATION OF A CONSTRAINED RESOURCE Belair Bistro identied that the caf's main bottleneck is Chef Pierre's time. The manager is currendy reviewing d1e quantity of each item that should be produced on a daily basis. During the afternoon. Pierre usually spends his time baking macarons and quiches. Everyday, the cafe sells out of the boxes of macarons and quiches. The demand for both products therefore far exceed the daily production of the caf. The following information about the products is provided to you by the manager: Box of II Quiche macarons Selling Price per unit $30 $ l8 Variable Costs m 515 Contribution Margin $ l2 $3 Chef Pierre explained that the macarons are an art and require a lot of time and precision to make. He therefore spends l8 minutes of his time on each box of l2 macarons while a quiche only requires 8 minutes of his time. REQUIRED: I. Which product should be prioritized by Chef Pierre in order to ensure that. Belair has the highest prot? 2. What qualitative factors should you consider when selecting which product should be prioritized? SITUATION 3A UTILIZATION OF A CONSTRAINED RESOURCE Belair Bistro identied that the caf's main bottleneck is Chef Pierre's time. The manager is currendy reviewing d1e quantity of each item that should be produced on a daily basis. During the afternoon. Pierre usually spends his time baking macarons and quiches. Everyday, the cafe sells out of the boxes of macarons and quiches. The demand for both products therefore far exceed the daily production of the caf. The following information about the products is provided to you by the manager: Box of II Quiche macarons Selling Price per unit $30 $ l8 Variable Costs m 515 Contribution Margin $ l2 $3 Chef Pierre explained that the macarons are an art and require a lot of time and precision to make. He therefore spends l8 minutes of his time on each box of l2 macarons while a quiche only requires 8 minutes of his time. REQUIRED: I. Which product should be prioritized by Chef Pierre in order to ensure that. Belair has the highest prot? 2. What qualitative factors should you consider when selecting which product should be prioritized? SITUATION 3B - UTILIZATION OF A CONSTRAINED RESOURCE - DATA ANALYTICS WITH EXCEL SOLVER I. Find the optimal product mix for Belair Bistro considering all products made by Pierre. In your analysis, you must consider the following constraints: You cannot produce more than the estimated demand for the product ii. You must produce at least 75 croissants each day iii. The number of quiches should equal the number of sandwiches. iv. The total Direct Labour minutes cannot exceed 3,404 minutes. Below is the current production of Belair Bistro. Macaron (box) Cookies Pie Muffin Croissant Danish Bread Quiche Sandwich Scones CM per unit Creme Brule Cake $12 $1 $5.70 $0.70 $1.20 $1.20 $0.95 $3 $1.25 $0.45 $2.40 DL Minutes $14 18 3 10 6 0.6 8 3 1.2 CM / DLM 6 25 $0.67 50.33 $0.57 $0.70 $0.20 $0.17 $1.58 50.38 $0.42 $0.38 Demand $0.40 $0.56 80 75 37 60 85 30 140 25 35 20 24 36 Current Production 50 75 40 45 75 30 100 20 20 20 20 30