SFC, a restaurant located on the National Highway 8, provides dining services to the

travellers. It was opened in 2010 by Mr. Ram Charan. The dining service included
providing breakfast and meals served at the restaurant or as a takeaway package. The
operations of SFC are taken care by the owner and his son. To decide the prices of the
products sold by SFC in the initial stage, Ram consulted a friend of his who was working
as an accountant in a retail chain in the locality. These prices have remained the same
since SFC began operating and are shown in Table 1.
The restaurant has been doing well and now Mr.Ram wants to pitch in to the railways
catering services to expand his business. The railways need two kinds of meals
Vegetarian and Non-Vegetarian. You have been brought in as the new financial manager
of SFC. After talking with your supervisor, Mr. Shyam, you decide that the pricing of the
products needs to be reevaluated before it can be quoted for the Railway tender. Mr.
Shyam is concerned that some product prices may be out of line when considering the
cost to make each item. He emphasizes to you that setting prices based on the relative
cost to produce each item is a priority to SFC for them to be able to get the tender and
also make profit from the deal. You and Mr. Shyam agree that relative prices for different
products should be based on direct materials cost only, because other costs of
manufacturing individual products (such as labor and overhead) would be difficult to
determine. You also agree that other factors like competitor and customer characteristics
should be kept in mind. Mr. Shyam adds that you should, Remember in setting your
prices that we are aiming to gain a 10% profit on each meal . I feel that a customer would
not pay more than Rs.55 for a Veg meal and Rs.80 for a Non-Veg meal. Of course, this
does not apply to extra items purchased by customer. Finally, for ease of use, all prices
should be rounded to Re.1 increments.
Costs:
Based on the information that Mr. Shyam has provided, you decide that it is best to first
determine the direct materials cost for each product sold by SFC. This information has
been gathered and is provided in Table 2.
Your next concern is the cost of labor and overhead needed to run the organization. The
average weekly labor cost for all employees is $450. Overhead consists of the costs of
maintaining the
area where SFC is located (maintenance includes large items like painting and replacing
countertops). These costs, amounting to about $40 per week, are determined based on a
formula, but Mr. Shyam indicates that he expects them to remain fairly constant as long
as the size of SFC does not change. The cost of salaries for the chefs who prepare meals
is categorized as direct labor. While
it might be possible to change these costs in the long run, Mr. Shyam estimates that they
will remain constant at $200 per week as long as total revenues are in a normal range,
which is from about $8001500. The cost of salaries for the serving staff (waiters) is at
$150 per week and is expected to remain the same.
Competition:
After thinking about the costs for The Bakery, you turn your thoughts to SFCs
competitors. You should identify competitors for SFC, given the nature of its customers
and products offered. Once identified, you should visit and evaluate these competitors to
determine how the products and services they offer will influence the prices for SFCs
products.
Customer Demand:
Each train in the railways carries on an average 850 passengers. Of these 30% bring
their own meal and 30% from the remaining have short duration journeys and therefore
do not purchase any meals on-board. The data from a survey suggests a 45% demand for
Non-Vegetarian meal on a train journey.