Cost Analysis – Caesar

Salad
Yaqi Wang
1006086717
Introduction

● My selected dish is a Caesar salad.

● In the following slides, I’m going to present the total cost

of producing a Caesar salad both at home and in a

restaurant.

● Total cost includes all manufacturing costs involved in

making this salad. Generally, it includes direct material,

direct labor, and indirect costs(manufacturing overhead)

related to the production process.

Total Cost of a Homemade Caesar Salad

Assumptions:
● Job ordering costing method is applied to calculate costs.

● Raw materials are purchased at a retail price from Walmart (see Appendix).

● Since it is homemade food by myself, there is no labor cost.

● Total time of making a Caesar salad is 10 minutes.

● Monthly utility bill (water and electricity used in the kitchen) is approximately $25.

● Allocating all overhead costs based on the total time I spend in the kitchen for cooking in a month.

● I spend approximately 45 hours in the kitchen per month, 1.5 hours per day.
Total Cost of a Homemade Caesar Salad

Direct Materials Used Overhead(Indirect) Costs

● 1 head of romaine lettuce: ● Utilities(water and electricity) used:
$3.97 / 2 heads = $1.985
Predetermined Overhead Rate
● Crisp croutons(50g):
= $25 / 45 hours
($2.27 / 142g) * 50g = $0.799
= $0.556/per hour
● Caesar salad dressing(30ml):
($3.27 / 475mL) * 30mL = $0.207
(10 minutes / 60 minutes) * $0.556

Direct Labor Used = $0.093

● Homemade: $0
Total Cost of a Homemade Caesar Salad

Total cost of making a Caesar salad Overhead Cost Direct Labor Cost
$0.093 $0
3% 0%
=Direct Materials Cost

+ Direct Labor Cost

Total Cost
+ Overhead Cost
$3.084
= ($1.985 + $0.799 + $0.207) + $0 + $0.093

= $3.084
Direct Materials Cost
$2.991
97%
Total Cost of a Caesar Salad Made in a Restaurant
Assumptions:
● Job ordering costing method is applied to calculate costs.

● Raw materials used in this restaurant are purchased at a retail price from Walmart (see Appendix)..

● Total time of making a Caesar salad is 10 minutes.

● The price of a Caesar salad is $14.8.

● There is one chef whose job is in charge of the whole process of making salads; receiving a hourly salary of $15.

● Monthly utility bill (water, electricity and gas used in the restaurant kitchen) is approximately $300.

● The monthly rent expense for the kitchen is approximately $1000.

● Allocating all overhead costs based on the chef’s monthly labor working hours which spend in kitchen for cooking.

● The chef who is responsible for making salads spent approximately 240 hours in kitchen per month, 8 hours per day.
Total Cost of a Caesar Salad Made in a Restaurant

Direct Materials Used Overhead(Indirect) Costs

● 1 head of romaine lettuce: ● Utilities used:
$3.97 / 2 heads = $1.985 $300
● Crisp croutons(50g): ● Rent Expense:
($2.27 / 142g) * 50g = $0.799 $1000
● Caesar salad dressing(30ml): ● Predetermined Overhead Rate
($3.27 / 475mL) * 30mL = $0.207 = ($1000 + $300)/ 240 hours
= $5.417/per hour
Direct Labor Used
(10 minutes / 60 minutes) * $5.417 /per hour
● (10 minutes / 60 minutes) * $15= $2.5
= $0.903
Total Cost of a Caesar Salad Made in a Restaurant

Overhead Cost
Total cost of making a Caesar salad $0.903
14% Direct Materials Cost
=Direct Materials Cost $2.991
47%
+ Direct Labor Cost
Total Cost
+ Overhead Cost
$6.394
= ($1.985 + $0.799 + $0.207) + $2.5 + $0.903
Direct Labor Cost
= $6.394 $2.5
39%
Contribution Margin & Profit Margin

Contribution Margin Profit Margin

=Price - Variable Cost of Making a Caesar Salad = Price - Cost of Good Sold
= Price - Direct Materials - Direct Labor = Price - Total Cost of Making a Caesar Salad
=$14.8 - ($1.985 + $0.799 + $0.207) - $2.5 =$14.8 - $6.394
=$9.309 =$8.406
In Percentage Form: In Percentage Form:
= Contribution Margin / Price = Profit Margin / Price
= $9.309 / $14.8 = $8.406 / $14.8
=62.9% =56.8%
Contribution Margin & Profit Margin Analysis

● In this case, assuming the price of a Caesar salad is $14.8. The contribution
margin is 62.9% or $9.309 in dollar value. The gross profit margin is achieving
56.8% or $8.406 in dollar value.

● The gross profit margin and contribution margin are both relatively high, which
indicates selling Caesar salads could generate a considerable amount of profit for
the restaurant. In other words, selling Caesar salad in the restaurant could be
considered a good choice due to its high profitability.
Thoughts, Analysis, and Reflection

● Referring to the calculations from previous slides, the total cost of a

homemade Caesar salad is $3.09 and the total cost of a Caesar salad made in

a restaurant is $6.4.

● The main reason for the cost difference is that making a dish in a restaurant
needs to consider extra labor costs and manufacturing overhead costs, such

as salary paid for workers, rental costs and higher utility costs.
Thoughts, Analysis, and Reflection

● Throughout this exercise, I found the process of identifying, classifying and

allocating costs is very complicated and time-consuming. Furthermore, I often

need to make assumptions and estimates during the cost calculation process. As a

result, there may be existing problems such as inaccurate estimation of costs.

● For example, I assumed raw materials are purchased at a retail price from
Walmart. While in reality, the restaurant may purchases the raw materials at a

lower wholesale price. Therefore, calculations based on assumptions would lead

to under or over-estimation of the total cost, thus causing price distortion.

Thoughts, Analysis, and Reflection

● To conclude, understanding cost is very important for a business. We need to

understand costs before making decisions. Understanding cost helps the

calculation of profit margin. Furthermore, businesses develop prices based on

the estimation of costs. As we know, setting the right price would be

considered the most important determinant for a business to succeed; it

influenced the sales revenue directly.

Appendix

• Price of direct materials used in total cost

calculation is referred by the retail price
in Walmart.