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The restaurant with dynamic costing

illus: for TH  

A couple of cost accountants came together to start a restaurant. They made quite a few enquiries about the possible clientele, number of eateries around that area, offices nearby that would have both floating and regular customers. They then started it with as little fanfare as possible, to reduce overheads on advertisement costs. They decided that people who are hungry would themselves look for the signboard of an eatery and that would be sufficient advertisement.

They expected that given their reasonable and transparent pricing policy, they would have the advantage of word-of-mouth publicity, which does not cost the establishment anything.

For each dish on the menu, the quantity and the price, based on raw material costs, overheads such as rent, electricity, wages, possible leakages of revenue, breakage of china, loss of small cutlery, profit margin, leftovers and so on, were factored in. In fact, they took pride in making every possible expense being taken into account, making the costing of the merchandise strictly as per cost accountancy norms.

The first week was dull, except on opening day. They had made provision for a dull first week, and took it in their stride. Slowly, the clientele grew. One of the partners used to go to the market each day to buy perishables, of course from a wholesale market. But it was found that buying in quantity led to high levels of spoilage, so resorted to buying as per immediate requirement from the retail market.

But then they found that the prices in the market fluctuated on a daily basis. But they were supposed to offer a certain quantum of each item they sell in terms of size, thickness and quantity. Initially they resorted to asking the chef to reduce the diameter of the dosa and the thickness of the idli when the price of blackgram went up. Some regular customers started grumbling about the reduced size at the cash counter, while paying the bill.

They discussed this at their meeting that night before the eatery closed for the day. Instead of reducing the size, they thought that they could have dynamic pricing, as the airlines, even the railways, now do. They put up a notice that the prices of individual items would be set on a dynamic basis, and would vary according to the wholesale price index, and adjusted to the nearest rupee in view of the problem with small change. Each day the customer was given a menu that showed the dynamic rates for the day. There was a proviso that these were subject to change without notice even on intra-day transactions if there was any change in the circumstances.

One day there was an autorickshaw strike, which necessitated taking a cab to bring vegetables, fish, meat and eggs. Correspondingly, the menu was displaying the changed, higher prices.

As far as cost accountancy norms went this system was very satisfactory, but the clientele was equally dynamic, and soon enough they looked for other eateries that had static prices, at least on a longer-term basis.

The cost accountants were left breaking their heads as to what went wrong, before their establishment closed its doors permanently.

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Printable version | Jun 18, 2021 7:31:39 AM |

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