Question

I would guess that each of you have been to a fast-food restaurant. Think about all of the aspects of the operation procedures used to take, process, and fill an order and deliver the order to the customer. Based on what you have observed during your visit to one of these restaurants, identify at least three variable and three fixed costs. Can you identify any potential mixed costs? Why is the restaurant willing to sell a large drink for only a few cents more than a medium drink? How is the restaurant able to offer a "value meal" (sandwich, drink, and fries) for considerably less than those items would cost if they were bought separately? Explain your thoughts on this information.

Answer 1

The three variable costs in fast food restaurant are as follows:

- Cost of ingredients used for making the food.

-Cost of direct labour

-Cost of beverages.

The three fixed costs in a restaurant are as follows:

-Rent paid for restaurant premises.

- Lease or rent payouts for equipment installed in the restaurant.

-Decor related items such as candles or flowers

Cost of disposable tissues can be a potential mixed cost as even though packets are bought at once which is a fixed cost , the quantity of tissues will eventually depend on the number of customers.

The large drink is only a few cents more than a medium drink because restaurants use this pricing as a strategy to invoke the thought in the minds of the consumers that buying a large drink is a better option because its cheaper, thereby shooting their sales of beverages and helpoing them achieve economies of scale.

A " value meal" has certain items which are pre-fixed. A restaurant can buy the ingredients used to prepare this meal in bulk and save alot of cots. The sale of individual items is more variable and thus they are expensive.