Hot Dog Cost Analysis

Shaun Witriol – Accounting

August 10th, 2012

Introduction

• This Hot Dog Cost Analysis has the items

broken down by Cost of Sales, Quantity Sold,

Total Cost of Sales, Total Revenue, and Price

changes for 2011 vs. 2012.

• It contains graphs, which are provided to give a

visual to aid in the proposed changes

recommended.

Cost of Sales

Item 2011 2012 Variance

Friar Frank $0.65 $0.72 $0.07

Kosher Dog $0.96 $1.04 $0.08

Big Dawg $0.96 $1.12 $0.16

Totals $2.57 $2.88 $0.31

Prices

Item 2011 2012 Variance

Friar Frank $4.00 $4.50 $0.50

Kosher Dog $6.25 $5.75 ($0.50)

Big Dawg $7.25 $7.00 ($0.25)

Totals $17.50 $17.25 ($0.25)

Item Sales

Item 2011 2012 Variance

Friar Frank 279,493 163,285 (116,208)

Kosher Dog 36,979 44,648 7,669

Big Dawg 25,283 33,648 8,365

Totals 341,755 241,581 (100,174)

Total Cost of Sales

Item 2011 2012 Variance

Friar Frank $181,670.45 $117,565.20 ($64,105.25)

Kosher Dog $35,499.84 $46,433.92 $10,934.08

Big Dawg $24,271.68 $37,685.76 $13,414.08

Totals $241,441.97 $201,684.88 ($39,757.09)

Total Revenue

Item 2011 2012 Variance

Friar Frank $1,117,960.00 $733,862.25 ($384,097.75)

Kosher Dog $231,109.75 $256,852.25 $25,742.50

Big Dawg $183,294.75 $235,425.25 $52,130.50

Totals $1,532,364.50 $1,226,139.75 ($306,224.75)

279,493 Friar Franks sold

YTD (7-29-11) in 2011.

163,285 Friar Franks sold

YTD (7-29-12) in 2012.

This area represents the area where we may

consider lowering the price of Hot Dogs by $0.25.

This would increase Items Sold by 58,104, and our

Total Revenue by $246,942.

$1,117,960 Total Revenue

Earned YTD (7-29-11) in

2011.

$733,862.25 Total Revenue Earned

YTD (7-29-12) in 2012.

Graph Explanation

•There is a variance of -116,208 between the amount of Friar Franks sold in comparison of 2011 vs. 2012. There has also been a price increase of

$0.50, which has affected sales. In turn, we have also increased our costs, $0.07 per Friar Frank Hot Dog from the switch of Sysco to US Foods.

•A price decrease of $0.25 would give us an incremental increase over our current sales, YTD 7-29-12.

•The price reduction could increase our current sales of Friar Franks by 58,104 (116,208/2). This would increase our sales by $207,041. (163,285

(Current YTD 7-29-12 Friar Franks sold) + 58,104 (Increase in sales from price decrease) = 221,389 Total Friar Franks Sold - Fiscal Period Ending

in July.

•221,389 Friar Franks Sold x $ 4.25 (price reduction) = $940,903.25

•Current Year Friar Franks Total Revenue = $733,862.25

•Total Revenue Increase = $207,041.

•221,389 x $0.72 = $159,400.08 Total COS

•$940,903.25/1.0775 (Sales Tax) = $873,228.74 - $159,400.08 = $713,828.66

•If we forego labor rates and spoilage for next year, and only take into account rent (48.5%), which would be $423,515.94, that would leave us with

$290,312.72.

Sodas - Costs

Item 2011 2012 Variance

Grand Slam $0.66 $0.67 $0.01

Regular $0.38 $0.39 $0.01

Total $1.04 $1.06 $0.02

Sodas - Prices

Item 2011 2012 Variance

Grand Slam $5.50 $5.50 -

Regular $4.00 $4.00 -

Total $9.50 $9.50 -

Sodas – Item Sales

Item 2011 2012 Variance

Grand Slam 105,650 93,924 (11,726)

Regular 284,592 103,546 (181,046)

Total 390,242 197,470 (192,772)

Sodas – Total Costs of Sale

Item 2011 2012 Variance

Grand Slam $69,729.00 $62,929.08 ($6,799.92)

Regular $108,144.96 $40,382.94 ($67,762.02)

Total $177,873.96 $103,312.02 ($74,561.94)

Sodas – Total Revenue

Item 2011 2012 Variance

Grand Slam $581,075.00 $516,582.00 ($64,493.00)

Regular $1,138,368.00 $414,184.00 ($724,184.00)

Total $1,719,443.00 $930,766.00 ($788,677.00)

Price Point for Grand Slam

Sodas, which have been

consistent the past two

years - $5.50.

Price Point for Regular

Sodas, which have been

consistent the past two

years - $4.00.

Total Item Sales for Grand Slam

Sodas for YTD (7-29-11), which

total 105,650.

Total Item Sales for Grand Slam Sodas

for YTD (7-29-12), which total 93,924.

Total Item Sales for Regular Sodas for YTD (7-29-11),

which total 284,592.

Total Item Sales for Regular Sodas for YTD (7-29-

12), which total 103,546.

Price Elasticity of Demand (P.E.D.)

• If a small change in price is accompanied by a large change in quantity

demanded, the product is said to be elastic (or responsive to price changes).

The opposite also applies, a product is inelastic if a large change in price is

accompanied by a small amount of change in demand.

Reference:

http://www.investopedia.com/terms/p/priceelasticity.asp#ixzz23AYJ7wz1

Price Elasticity of Demand (P.E.D.)

(Calculation) • A measure of the responsiveness of the quantity demanded of a good to a

change in its price. It is calculated as:

• The Percentage of Change in Quantity Demanded by the Percentage of

Change in Price.

Reference: http://www.investopedia.com/terms/p/priceelasticity.asp#ixzz23AZ9Luvj

Hot Dogs Change in Quantity Demand

Item 2011 2012 Variance Percentage of

Change

Friar Frank 279,493 163,285 (116,208) (71.17%)

Kosher Dog 36,979 44,648 7,669 17.18%

Big Dawg 25,283 33,648 8365 24.86%

Totals 341,755 241,581 (100,174) (41.47%)

Hot Dogs Change in Price

Item 2011 2012 Variance Percentage of

Change

Friar Frank $4.00 $4.50 $0.50 11.11%

Kosher Dog $6.25 $5.75 ($0.50) (8.70%)

Big Dawg $7.25 $7.00 ($0.25) (3.57%)

Totals $17.50 $17.25 ($0.25) (1.45%)

Hot Dogs Price Elasticity of Demand

Item

Percentage of

Change in

Quantity

Percentage of

Change in

Price

P.E.D.

P.E.D.

Absolute

Value

Friar Frank (71.17%) 11.11% (15.61%) 15.61%

Kosher Dog 17.18% (8.70%) (50.63%) 50.63%

Big Dawg 24.86% (3.57%) (14.37%) 14.37%

Totals (41.47%) (1.45%) 3.50% 3.50%

Hot Dogs Price Elasticity of

Demand Evaluation

• The numbers on the right hand side of the Price Elasticity of Demand for our three Hot Dogs show how receptive they are to changes in pricing.

• What this tells us is that the sale of these items are directly related to the related retail price.

• The higher the number above 1, the more elastic the product.

• For this we can take the absolute value, and associate it with the number 1. In this statistic, -1 and 1 are utilized in the same manner.

Sodas Change in Quantity Demand

Item 2011 2012 Variance Percentage of

Change

Grand Slam 105,650 93,924 (11,726) (11.10%)

Regular 284,592 103,546 (181,046) (63.62%)

Totals 390,242 197,470 (192,772) (49.40%)

Sodas Change in Price

Item 2011 2012 Variance Percentage of

Change

Grand Slam $5.50 $5.50 $0.00 0.00%

Regular $4.00 $4.00 $0.00 0.00%

Totals $9.50 $9.50 $0.00 0.00%

Sodas Price Elasticity of Demand

Item

Percentage of

Change in

Quantity

Percentage of

Change in

Price

P.E.D.

P.E.D.

Absolute

Value

Grand Slam (11.10%) 0% 0% 0%

Regular (63.62%) 0% 0% 0%

Totals (49.40%) 0% 0% 0%

Sodas Price Elasticity of Demand

Evaluation

• The numbers on the right hand side of the Price Elasticity of Demand for our sodas show how receptive they are to changes in pricing.

• What this tells us is that the sale of these items are not related to the related retail price.

• These items have a elasticity of 0, which means they are inelastic to their retail price.

• To clarify this more in-depth, there is no relation of the sale of these items to its price.

Price Elasticity of Demand Findings

• What the P.E.D. of these numbers tell us is that the sale of Hot Dogs raises the sale of drinks.

• As we can see that the sale of Hot Dogs (Friar Franks, Kosher Dogs, and Big Dawgs) are directly related to its selling price, and we can also see that the sale of Sodas (Grand Slam and Regular) have no relation to its price.

• We can see that the sale of Kosher Dogs and Big Dawgs rose, due to the decrease in pricing. We can also see that the sale of Friar Franks decreased, due to its increase in pricing.

• In turn, the sale of Sodas (Grand Slam and Regular Sodas) went down, as they are directly related to the sale of Friar Franks (Our #1 Selling Item as of 7-29-12).

Price Elasticity of Demand Solutions

• As we can see that the sale of drinks are directly related to our Friar Frank sales, and our sales have decreased since the price increase to Friar Franks.

• They have affected the sale of Sodas, which are on a downward trend.

• A decrease of $0.25 could potentially increase the sale of Friar Franks by 58,104 YTD, next season.

279,493 Friar Franks sold

YTD (7-29-11) in 2011.

163,285 Friar Franks sold

YTD (7-29-12) in 2012.

This area represents the area where we may

consider lowering the price of Hot Dogs by $0.25.

This would increase Items Sold by 58,104, and our

Total Revenue by $246,942.

$1,117,960 Total Revenue

Earned YTD (7-29-11) in

2011.

$733,862.25 Total Revenue Earned

YTD (7-29-12) in 2012.

This area represents the area of consumer surplus. Since

customers are currently used to spending the extra $0.25, we

should increase our 22 oz soda by $0.25.

Consumer Surplus

• The price reduction of $0.25 in our Friar Frank, which would take it from $4.50 to $4.25, could potentially take our current YTD Sales (7-29-12) 163,285 (Item Sales) and increase them by 58,104.

• This could potentially raise our revenue for next season $246,942.

• Since customers have proven they are already willing to spend the extra $0.25, there is no reason why we should not expect them to pay the $0.25 somewhere else.

Drinks to Hot Dogs (Items)

Year Drinks Hot Dogs Drink % Drink to Hot Dog

Ratio

2006 443,251 416,514 106.42% 1 : .94

2007 439,633 473,156 92.92% 1 : 1.08

2008 426,808 554,926 76.91% 1 : 1.30

2009 450,390 461,674 97.56% 1 : 1.03

2010 297,850 294,822 101.03% 1 : .99

2011 260,101 266,032 97.77% 1 : 1.02

2012 197,470 163,285 120.94% 1 : .79

Price Decrease/Increase

• A price reduction of $0.25 in our Friar Frank

can be reassigned to our Regular Soda.

• We can raise the price of our Regular Soda to

$4.25, and decrease our Friar Frank to $4.25.

• Which we could easily market, and our sales

could increase exponentially.

Regular Sodas to Friar Franks

Year Regular Soda Friar Frank Soda to Friar

Frank %

Soda to Friar

Frank Ratio

2011 284,592 279,493 101.82% 1 : .98

2012 103,546 163,285 63.41% 1 : 1.37

Total 388,138 442,772 87.67% 1 : 1.12

Price Realignment Sales

• If we take into account the price reduction on Friar Franks of $0.25 and the price increase of $0.25 in Regular sodas –

– We can estimate that Friar Franks will increase by 58,104 items, and Regular Sodas by 90,523.

• 284,592 (Regular Sodas 2011) – 103,546 (Regular Sodas 2012) = 181,046/2 = 90,523

– A total increase of 148,627 items sold.

• 148,627 (Items Sold) x $4.25 = $631,664.75 Total Revenue

Statement of Findings

• The numbers show an increase of sales in the Kosher Dog and the Big Dawg.

• The increase in price on the Friar Frank has depleted sales of this item in comparison from 2011 vs. 2012.

• A price reduction could increase sales, and would represent an incremental rise in revenue.

• As the sale of Sodas is directly related to the sale of Hot Dogs, we may benefit exponentially from this price rearrangement.