Question

Barry's Burger Shack operates a single location at NEU selling burgers, fries, and sodas to faculty and students. Revenues for 2017 were $90,000 with profits of $2,250; industry benchmarks suggest profit margins should be close to 10% of revenue. Barry noticed an increasing number of complaints from customers over the quality of his burgers and the messiness of soda service are and has hired you to estimate the cost of quality for his burger business. One in 30 customers returned burgers for a replacement due to burger being too greasy, serving too cool, or served with wrong ingredients, the cost to replace was 1,600 per year.

You observe the cooking process for a few days, and identify the following process steps as well as related material costs, labor time, and scrap % at each step

Required: Complete the chart above to compute the scrap cost per unit. Assuming Barry sells 18,000 burgers per year, what his annual cost of scrap? What would you recommend?

			Material	Labor		Units	Labor $/hr	Cumul.	Scrap
Step	Process Description		$/unit	Mins/unit	% scrap	Started	$9.00	Cost	Cost
1	Remove/thaw burgers		$0.75	0.10	0.0%	18,000			$-
2	If uncooked >24hrs, scrap		$-	0.20	1.0%				$-
3	Cook on grille		$0.10	1.50	0.0%				$-
4	if overcooked, scrap		$-	0.30	1.5%				$-
5	Assemble burger		$0.30	0.90	0.0%				$-
6	Store in heating unit		$-	0.10	0.0%				$-
7	If >10 mins in heater, scrap		$-	0.20	2.5%				$-
	Totals		$1.15	$3.30	5.0%		$0.000	$0.000	$-

Answer 1

		Material	Labor		Units	Labor $/hr	Cumul.	Scrap
Step	Process Description	$/unit	Mins/unit	% scrap	Started	$9.00	Cost	Cost
1	Remove/thaw burgers	$0.75	0.1	0.00%	18934	0.015	$0.765	$-
2	If uncooked >24hrs, scrap	$	0.2	1.00%	18934	0.03	$0.795	151	(189.94*0.795)	189.9371
3	Cook on grille	$0.10	1.5	0.00%	18744	0.225	$1.120	$-
4	if overcooked, scrap	$	0.3	1.50%	18744	0.045	$1.165	328	(281.55*1.165)
5	Assemble burger	$0.30	0.9	0.00%	18462	0.135	$1.600	$-
6	Store in heating unit	$	0.1	0.00%	18462	0.015	$1.615	$-
7	If >10 mins in heater, scrap	$	0.2	2.50%	18462	0.03	$1.645	759	(461.40*1.645)
	Totals	$1.15	$3.30	5.00%		$0.50	$1.65	1238
	For each step we have to calculate the units that would be produced and which might have led to production of scrap
	We would start with the end process to arrive for units produced at beginning
For Step 7 : Scarp is 2.50%, units at start is 18000, so total units produced = 18000(1-0.025)
For Step 5 and 6 there is no scrap								1.50%
For Step 4 : Scarp is 1.50%, 18462/(1-0.0150)								98.50%	18462	18743.15
For Step 3 : There is no scrap								1%
For Step 2 : Scarp is 1%, 18744/(1-0.001)								99%	18744	18933.33
Labor $/hr = (Labor Mins/unit*9)/60
Recommendation : Most of the scrap costs occurs when burger is fully prepared, Barry will have to do better job in matching the supply with the demand by setting maximum quantity in heating unit and training customers to learn they will get a better burger if they can wait for some more minute