Burger Doodle is a fast-food restaurant that processes an average of 680 food or
ID: 406929 • Letter: B
Question
Burger Doodle is a fast-food restaurant that processes an average of 680 food orders each day. The average cost of each order is $6.15. Four percent of the orders are incorrect, and only 10% of the defective orders can be corrected with additional food items at an average cost of $1.75. The remaining defective orders have to be thrown out. b. In order to reduce the number of wrong orders, Burger Doodle is going to invest in a computerized ordering and cash register system. The cost of the system will increase the average order cost by $0.05 and will reduce defective orders to 1%. What is the annual net effect of this quality improvement initiative? b. What other indirect effects on quality might be realized by the new computerized order system?
Explanation / Answer
a. Number of orders = 680
number of incorrect orders = 4% of 680 = 27.2
total cost of 680 orders = 680*$6.15 = 4182
no. of defective orders that can be corrected = 10% of 27.2 = 2.72
additional cost for correction = 2.72*1.75 = 4.76
So total cost+cost of correction = 4182+4.76 = 4186.76
average product cost = (total cost+cost of correction)/680 orders = 4186.76/680 = $6.157
b. new average order cost = 6.15+0.05 = 6.20
no. of defective orders = 1% of 680 = 6.8
10% of defective orders that can be corrected = 10% of 6.8 = 0.68
Cost of these correction = 0.68*$1.75 = $1.19
total cost = 680 orders*$6.20+($1.19) = 4217.19
average cost per order = 4217.19/680 = 6.20175
The net effect is that average cost per order will increase to $6.20175 from the earlier cost of $6.157. The number of defective orders will become 6.8 orders from the earlier number of 27.2 orders. This will increase the revenue.
c. The obvious indirect effect of the new computerized system is that the number of defective orders being thrown out will reduce thus causing lower wastage and thus increasing profits - i.e. bottomline.
Also the number of defective orders is reducing. This will increase the revenues - i.e topline.
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