Case Food Truck Business

You and your best friend recently graduated with a business diploma. Both of you have similar interest to start a business. Both of you have interest in food since young. Right after graduation you and your future business partner did some market research on the food industry and found out that one of the fastest growing segment in the food industry is the food truck segment which attracts mostly the young professionals and college students. Research shown that this particular market segment have the spending power and is willing to spend on quality, fast serving, and healthy food. You and your partner decided to start a food truck business offering quick and healthy burgers targeted at the young adult market.

Due to the high risk and very competitive market segment the partners decided, for the initial launch, to offer 2 items on the menu. The decision to limit the offering to two items is because it is easier to manage and more importantly maintain the quality of food to ensure that first time customers will have a pleasant experience and hope it will encourage repeat purchase. If the business goes well in the first three months, the plan is to gradually increase the number of items to the menu.

Below are descriptions of the two items that will be offered:

1. Sesame Bun Burger (SBB) 80 g quality beef pattie wrapped with two toasted whole wheat bread, topped with fresh lettuce, tomato, cheddar cheese, and special sauce served with french fries and carbonated soft drinks.
2. Soy Burger (SB) 100g of soya based pattie wrapped with two thick slices of sour dough bread and topped with sauted button mushroom served with sweet potato chips and iced green tea.

Below are forecasted cost data:

1. Initial start-up costs:
   1. Food truck:

1. 1. Purchase food truck for RM70,000, paid RM10,000 cash and taking RM60,000 loan from Small and Medium Enterprise (SME) program with an interest of 6% per annum with monthly interest payment.
   2. Estimated truck life 7 years with salvage value of RM20,000
   3. Straight line depreciation
2. 2. Lap top computer with business programs:
      1. Purchase price RM3,600; paid cash
      2. Estimated life 3 years with no salvage value
      3. Straight line depreciation
3. 2. Standard raw material cost per serving:

Menu	Pattie	Bread	Toppings	Fries	Packaging	Drinks
Sesame Bun Burger (SBB)	RM3.00	RM0.50	RM1.50	RM0.80	RM0.20	RM0.50
Soy Burger (SB)	RM1.50	RM1.00	RM1.50	RM1.00	RM0.20	RM0.50

3. Budgeted monthly fixed operating costs:

Budgeted Fixed Operating Cost Per Month
Activities	Operating Costs
Advertising	RM 50.00
Local council business permit	RM 80.00
Gas	RM 200.00
Food truck maintenance	RM 200.00
Petrol	RM 200.00
Utilities	RM 100.00
Food truck loan interest payment	RM ?
Worker salary*	RM 4,000.00
Food truck depreciation expense	RM ?
Computer depreciation expense	RM ?

*worker costs the whole operation will be managed by the two partners whom will be paid a monthly salary of RM 2,000. Besides the monthly salary, the two partners will also share profit earned.

A. Cost Control (8 marks)

The partners believed that controlling cost is critical to their long term profitability. The following are budgeted and actual activities and cost for the first month of business:

	SBB		SB
	Budget	Actual	Budget	Actual
Units	1050	990	450	475
Pattie	RM 3,150	RM 3,100	RM 675	RM 730
Bread	RM 525	RM 520	RM 450	RM 490
Toppings	RM 1,575	RM 1,550	RM 675	RM 720
Fries	RM 840	RM 800	RM 450	RM 455
Packaging	RM 210	RM 200	RM 90	RM 96
Drinks	RM 525	RM 500	RM 225	RM 250
O/H	RM 4,074	RM 4,014	RM 1,746	RM 1,746

Required:

1. 1. Prepare a cost performance report for the first month of operation (Compare actual costs with flexible budgeted costs).
2. 2. Discuss the possible causes for significant costs variances (favourable and unfavourable) and recommend correction actions to rectify the costs variances.