Restaurants such as Subway generally offer a limited number of food categories (subs, salads, wraps, etc.) that are similarly priced. On the other hand, a restaurant such as Applebee’s will have a broader menu in which each entrée is individually priced. Consider the “behind the scenes” operation of each restaurant.

1. Assuming that the prices reflect the restaurants’ cost, explain why these two restaurants price their products so differently.

2. How might a Subway store’s overhead differ from Applebee’s? How could these differences impact the restaurants’ costing systems?

3. Briefly explain a process that each might use to estimate product costs. Include overhead costs as well as whether or how those might be pooled. For any cost pools, identify an appropriate cost driver.