Cost Project #5

This assignment is due on June 8^th at 5pm. NO Late work will be accepted.  

Fred’s BBQ

Fred was a salesman for about the past 15 years. He would make a good money and have a decent living, however is real passion is food and cooking.  He has been tinkering with creating smoked BBQ pits as well as using the BBQ’s to cook the food.  He recently quit his job and is all in selling BBQ pits and BBQ food. He recently constructed a portable BBQ and would set up on the side of a popular and busy street along with other street vendors and food trucks. His business and food are quickly picking up momentum. His BBQ is delicious, and customers are curious about the smoked BBQ pit that they are interested in buying the custom-made BBQ. Fred has a good relationship with all his customers and his customers keep on coming back for more. Fred gives hearty portions and the food quality is premium. He has a strong social media following and excellent Yelp Reviews. Fred gives a free sample of their choice of meat to first time customers. He has also received orders for Catering his food for corporate events and graduations. If he receives a catering order he may not have enough time or capacity to cook for the night to be out on the street. He can only handle 2 catering orders the most per day.

Fred’s BBQ sells a 3-meat combo, a 2-meat combo and a 1 meat combo. All the meat is slow cooked and smoked all day anywhere from 2-12 hours to prepare for the evening sale. The meat choices include Tri Tip; BBQ brisket; Hot Links; Pork Ribs and Chicken Legs. Each Combo comes with two side choices where customers can choose between or include which are Corn; Potato Salad; BBQ Baked Beans with Bacon; Mac & Cheese and Coleslaw.  He also sells a Tri-trip or Brisket sandwich that is also popular and one of his bet selling items.

One of the issues that Fred and most street vendors have to deal with is the health inspector. If the health inspector shows up they can fine and shut down the business. They are given a warning for the 1^st offense. On the second offense they are issued a citation and essentially are required to have hot water and other requirements. As a result, most, street vendors then become food trucks to comply with the health department requirements. One of the big issues that Fred is going to come up against and address is to decide to open a full-fledged restaurant, outfit an entire food truck or expand the number of potable BBQ stations from one to three.

Fred just knows how to cook and make BBQ pits and has hired you the emerging cost consultant to help him with all cost accounting needed and required for decision making. He has no idea what his costs and margins are and he hopes you will provide him with the analysis and numbers that he needs.

Key Information

Fred is only open Wednesday-Sunday from 9pm to Midnight.  He just prepares enough food to sell out and usually does every night.  Some days he cooks more than usual but usually sells out. He can generate revenue of either $400 a day to $4,000 on a good Saturday night. He has been averaging $14,000-$17,000 in food sales for the month.  His most popular items are the tri-tip and brisket.

The sales price and menu consist of the following items, a 1-meat combo is $12; a 2meat combo is $17; a 3-meat combo is $23.  Fred also sells either a tri-tip or brisket sandwich for $6. Fred also sells can soda and bottled waters for $1 each. He also sells individual sides for $3 each. Each meat is also available to be purchased a la carte at $15 per pound.

For Catering orders Fred uses these same sales prices and has a minimum of 20 persons for catering. He has performed 11 catering orders in the past all at the same price of $1,500. He cooks a bunch of meat and sets up shop at the client’s location.

One of the main costs and areas of concern is how much Fred pays for the meat that he purchases to cook.  Fred does use high quality premium meat and has found a vendor that gives him a good price because he has been buying so much from them and is a new constantly returning customer. The Tri -tip is the most expensive meat to purchase at $9 per pound. A rack of ribs sells for $8 each and comes with 12 ribs, then the Brisket is $7 per pound, the hot links are $3 each and the chicken legs are $3 each. Each 1 meat combo comes with 1 pound of meat. A two meat or three meat combo comes with about ¾ lb for two meats and a three-meat combo comes with ¾lb  for each piece of meat. If a customer orders pork ribs, they receive 3 ribs. If a customer buys a hot link they receive 1 link and if they order a chicken leg they receive one leg. Fred weighs each portion of brisket and tri tip before it is placed in the customers to go container box.

(For example if a customer orders a 3- meat combo and their choice of meats are

Brisket, ribs and a hot link they would receive ¾ lbs. of brisket, 3 ribs and 1 hot link.)

Fred has also thought of expanding his menu items but does not know what to offer or what would be a good choice. All his side dishes, cost $20 per night or $50 per catering event. His side dishes include Macaroni and Cheese, BBQ baked Beans, Potato Salad and a slice of Texas Toast.

In addition, he also must buy wood to cook in his BBQ. He spends and goes through $65 each day he cooks of wood to fully power and cook the BBQ regardless of it is a catering or regular night.

Fred does not take a salary or monthly draw, but he does have a helper and he gives him $140 a night cash for each night that he works. He received cash sales and takes all credit card and debit cars. Receipts from credit cards are instantly deposited at the point and time of sale.

The projected costs to outfit an entire food truck with all the necessities needed would be $150,000. Fred thinks that this cost is not reasonable and does not want to pursue this option.  Fred does not have the cash necessary to fully fund this purchase but wants to know what his options would be. He can get a jumbo loan from the bank of $150,000 at 23% interest. If he can acquire the food truck, he could increase his sales by 30-35%. Fred currently has, $4,050 in his company’s operating bank account and accepts cash and all major credit cards. The cost of credit card fee is 0.25% of sales.

He also has thought about adding either one or two BBQ pits to set up at other locations. It costs about $1,300 to construct a BBQ pit and takes about a month for Fred to put together.  Fred is the only one who has the knowledge, capability and know how as to how to construct the custom-made BBQ’s. He has received requests for the BBQ and has 16 customers who have pledged or are interested in having their own BBQ pit.  Fred has sold 4 customized BBQ that he has built for $2,000 each. By adding an extra BBQ pit location, Fred expects that he can increase his revenue by $6,000 per month. This is the most likely option that Fred is pulling for.

A customer came to Fred and was very impressed with his business and food that he offers, he offered to invest and put any amount of Capital needed in Fred’s Business in exchange for 80% of the company and 80% of the profit and loss, leaving Fred with only 20% of his company. Fred does not like this idea but needs to know this option.

Fred has come to you for advice as to what he should do?  Using what you have learned in the class present your report, findings and analyzes in a written report due on June 8^th, 2021 at 5pm

Guidelines-General

There is no page limit on the written report but the report must contain at least four of the items a listed below. You are free to choose more than four items, but they will be evaluated accordingly. The written report will be inspected for spelling, grammar, punctuation, mathematical and statistical accuracy in regards to the cost accounting objectives being demonstrated, readability and visibility.

Remember that in any cost or consulting engagement the client is asking us (in this case you) to come up with the answer or what you believe the answers should be. You must also have your substantiation and support for you reasoning.  You cannot ask your instructor for the answers and the instructor will not verify or review any information. You can ask for clarification and explanation on anything related to the cost concepts in class. Throughout the project you must use the cost concepts and tools that you have learned and utilized from the class. It is also your chance to demonstrate your knowledge, creativity and entrepreneurial spirit with this project.

Choose Four of the Items below that need to be specific Required Written Report-

1. Calculate the following items (must include a through j, if applicable and as necessary)
   1. Direct Materials
   2. Direct Labor
   3. Fixed Manufacturing Overhead
   4. Contribution Margin
   5. Variable Overhead
   6. Variable costs
   7. Break- Even Point in Sales
   8. Breakeven point units
   9. Margin of Safety
   10. Any other additional ratios, costs or expenses that your group can identify that is relevant information and can impact the decision-making process.
2. Create a three-month Cash projection Budget based on your costs and factors effective January 2020.
3. Prepare a Cost Volume Production report showing the relevant range of activity needed to achieve profitability effective January 2020.
4. Create a list of new food items that Fred could possibly implement in his business including the sales price, costs and margins to substantiate your recommendation.
5. Identify and recommend which food items we would prefer our customers to purchase and why?
6. Prepare a projected three-month Income Statement effective January 2020.
7. Identify what the monthly cash inflow or outflow is projected to be.
8. Identify the Financing and Capital needs and possible options required for this project.
9. Analyze the opportunity cost and provide options if Fred continues to operate with no changes.
10. Prepare a Conclusion and your overall recommendation, or strategic options for the project.

Progress Reports-

Just like a real client consulting engagement, your client can and will demand an update as to the progress of the engagement. Since this project is a significant portion of your grade you will and can be asked to submit a progress report. This is to make sure that you do not start the project one week before the due date and to ensure that consulting engagement is moving forward. Progress reports will be announced at the instructor’s discretion and students will always be given at least one class meeting notice before a progress report is due. Progress Reports can also be voluntary submitted by the team at any time.  The progress report will consist of a one-page summary of your activity. The report can include charts, graphs and any information which you feel demonstrated progress. Progress reports represent a portion of your overall grade for this project.