Financial Management Analysis III Worksheet

As Keylinn, FSD at EKMC thinks back over the past few months she is pleased to see the improvements the FNS department is finally beginning to show on the Press Ganey satisfaction scores for patient feeding. Now its time to turn her attention and focus on the staff/visitor cafeteria. Keylinn reviews the Income Statement and sees that food costs for the past three months have increased from 37.5% (her guideline and standard) of revenue to 43%.

One recommendation made by Chef Jamie is to offer rotisserie chicken to increase sales in the cafeteria. Chef Jamie recommends purchasing whole five-pound chickens (at $1.35 per pound) and prepare them in the rotisserie placed directly on the serving line in the cafeteria. The cook would quarter the chickens right in front of the customers who would be enticed by the sight and smell. Jamie estimates that they could sell 160 servings the first month and then increase to 200 and 250 servings for the next 2 months respectively. Jamie feels strongly that they will be able to increase sales in the future as word gets out. Jamie says that they can purchase a new rotisserie for $11,000. The useful life of the rotisserie equipment is ten years, and with an end-of line resale value of $500.

Average labor cost for the FNS department is $12.70 per hour; Jamie calculates that it would take about one hour of prep time for every batch of twenty-five chickens, which would include prepping the chicken and loading and cleaning the rotisserie. In addition, he estimates another two minutes of labor per chicken to remove it from the rotisserie, to portion it, and serve it. To determine the price, Jaime would like to use an operating margin of 55% instea of the 37.5% food cost margin. Keylinn is questioning the price since they usually use the food cost mark-up factor to determine price and this would be quite different. In addition, she wonders if spending $11,000 on a new rotisserie would really give her a return on her money.

	Questions
1.	What is the food cost per portion of rotisserie chicken?
	(Cost of 1 chicken?) (How many Servings per chicken?) Cost for 1 serving?
2.	What is the labor cost per portion?
	(Cost to prep 25 chickens 4 servings per chicken) (cost to remove/portion/serve 1 chicken 4 servings per chicken) Labor cost per serving?
3.	What is the total cost (food cost + labor cost) per portion?
	(food cost per portion + labor cost per portion) Total cost?
4.	What should the calculated Selling Price be at the operating margin (55%) as suggested by Chef Jamie?
	(use the equation 55/100 = Total cost/X) Answer
5	What should the selling price be if your food cost percentage standard is 37.5%?
	(Use the equation 37.5/100 = Food cost/X Answer
6	Using the selling price calculated using a 55% margin, what is the contribution margin per serving?
	(Selling price using 55 % selling price total cost) Answer
7	At this food cost percentage (37.5%), what is the Contribution Margin per portion?
	(Selling price using food cost % food cost) Answer
8	If using the selling price with a 55% operating margin, what would be the expected income for the first month?
	Answer
9	If using the selling price with a 37.5% food cost, what would be the expected income for the first month?
	Answer
10	Using a straight-line depreciation method, what is the depreciation cost per month for the rotisserie?
Answer	Answer