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Korean BBQ Plate is a restaurant that offers three types of Korean BBQ platters: Beef, Pork and Chicken. Prior month revenue and cost data
Korean BBQ Plate is a restaurant that offers three types of Korean BBQ platters: Beef, Pork and Chicken. Prior month revenue and cost data are as follows: Beef Pork Chicken Total Sales 45,000 12,000 21,000 78,000 Variable expenses (28,000) (10,000) (10,500) (48,500) Contribution margin 17,000 2,000 10,500 29,500 Direct fixed costs (3,000) (1,000) (3,000) (7,000) Allocated fixed expenses (10,000) (5,000) (5,000) (20,000) Net operating income 4,000 (4,000) 2,500 2,500 Management is concerned about the continued losses from Pork and wants a recommendation as to whether this platter should be removed from the menu. The direct fixed costs reflect equipment used specially for each dish. The equipment used for Pork has no resale or reuse value. As customers value diversity in product selection, management expects that elimination of Pork will decrease the sales of Beef by 5% and will decrease the sales of Chicken by 8%. Required: Provide a recommendation as to whether Korean BBQ Plate should discontinue the Pork platter from a financial point of view. Support your recommendation with relevant cost and benefit analysis. (10 marks)
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