Solution: SITUATION 1: KEEP OR DROP A PRODUCT / SEGMENT

1. Relevant Costs and Computation of Loss/Gain

To decide whether to keep or drop the online delivery segment, we need to consider the relevant costs,
which are costs that will be eliminated if the segment is dropped. Fixed costs that are allocated and not
directly attributable to the segment will generally not be relevant as they will not be eliminated if the
segment is dropped.

Relevant costs:
o Variable Costs: $166,800 (It is avoidable if we drop the online platform segment)
o Salaries: $12,000 (direct and traceable to the segment, it is not to be incurred in the future
(avoidable) if we drop the online platform segment)
o Advertising: $2,500 (direct and traceable to the segment, it is avoidable if we drop the online
platform segment)
o IT Maintenance: $16,000 (direct and traceable to the segment, it is avoidable if we drop the
online platform segment)

Unavoidable costs:
o Utilities: $2,450 (It is unavoidable. The utility costs are largely fixed and related to the entire
facility. Even if the online delivery segment is discontinued, the utilities used by the kitchen and
other areas will still be consumed.)
o Depreciation: $5,500 (It is Sunk cost, includes the motorcycle, unavoidable)
o Insurance: $1,200 (It is unavoidable. The insurance cost for the building and its contents is a
fixed expense that will remain regardless of the segment’s status)
o Manager Salary: $17,500 (portion attributable to the online delivery segment, it is unavoidable)

Computation of Loss/Gain:

1. Contribution Margin from Online/Delivery:

o Sales: $209,000

o Variable Costs: $166,800

o Contribution Margin: $42,200

2. Fixed Costs to be Eliminated:

o Salaries: $12,000

o Advertising: $2,500

o IT Maintenance: $16,000

o Total Fixed Costs to be Eliminated: $30,500

3. Net Gain/Loss if Dropped:

o Contribution Margin Lost: $(42,200)

 o Fixed Costs Saved: $30,500

o Net Gain: $11,700

Dropping the online delivery segment would result in a net gain of $11,700.

2. Qualitative Factors

1. Customer Acquisition and Retention: The online delivery platform has been a source of new
customers who eventually visit the café. Dropping it might reduce the influx of new customers.

2. Brand Exposure: The online presence increases brand visibility. Without it, the bistro might lose
out on potential marketing benefits.

3. Manager's Time: Dropping the segment could free up Gabriel's time, allowing him to focus on
other projects and staff management, potentially reducing staff turnover and improving overall
service quality.

4. Customer Convenience: The online platform provides convenience to customers who prefer
delivery, which might be a competitive advantage.

5. Operational Efficiency: Without the online segment, the restaurant's operations might become
more streamlined, potentially improving efficiency and service in the bistro and café.

By analyzing both the quantitative and qualitative factors, Gabriel can make a more informed decision
regarding the online delivery segment of Belair Bistro.

Solution: SITUATION 2 – MAKE OR BUY A PRODUCT

1. Relevant Costs and Computation of Gain/Loss

Relevant Costs

1. Costs to Make (Current Situation):

o Direct Materials: $0.95 per croissant

o Variable Costs: $0.10 per croissant

o Total Cost to Make per Croissant: $1.05

o Total Daily Cost to Make 150 Croissants: 150 * 1.05 = $157.50

2. Costs to Buy (Outsourcing to Le Louvre):

o Cost per Croissant: $1.15

o Daily Cost for 150 Croissants: 150 * 1.15 = $172.50

o Daily Delivery Charge: $40

 o Total Daily Cost to Buy: 172.50 + 40 = $212.50

3. Opportunity Cost (Gain from Making Pies):

o Contribution Margin per Pie: $3.50

o Number of Pies Made: 25

o Total Contribution from Pies: 25 * 3.50 = $87.50

4. Sale of Oven:

o Current Value: $2,500 (considered as a one-time gain)

Computation of Gain/Loss

1. Daily Cost Comparison:

o Cost to Make Croissants: $157.50

o Cost to Buy Croissants: $212.50

o Difference in Daily Cost: 212.50 - 157.50 = $55 (additional daily cost of buying)

2. Total Gain/Loss per Day:

o Additional Cost per Day: $55

o Opportunity Cost Gain (Pies): $87.50

o Net Daily Gain: 87.50 - 55 = $32.50

3. One-time Gain from Selling the Oven: $2,500

Net Gain from Outsourcing:

 Daily Net Gain: $32.50

 One-time Gain: $2,500

2. Qualitative Factors

1. Quality Control: Outsourcing the croissant production might affect the quality and consistency
of the product. Ensuring that Le Louvre maintains the high standards expected by Belair Bistro’s
customers is crucial.

2. Flexibility and Control: In-house production allows for greater flexibility in adjusting the recipe,
production volume, and immediate response to customer feedback. Outsourcing might
introduce delays or restrictions in making such changes.

3. Reliability of Supplier: Assessing the reliability and reputation of Le Louvre is important to

ensure they can consistently meet delivery schedules and maintain quality.
 4. Creativity and Employee Satisfaction: Pierre’s enthusiasm for making pies indicates a potential
increase in job satisfaction and creativity, which could positively impact his overall performance
and the variety of offerings at the café.

5. Contract Terms: The need to communicate changes 48 hours in advance and the associated
administrative charges should be considered for operational flexibility.

6. Market Conditions: The potential for price changes after the one-year contract term and the
stability of raw material prices should be taken into account.

By considering these factors, Belair Bistro can make a more informed decision regarding whether to
make or buy the croissants, balancing both financial and non-financial impacts.

Solution: SITUATION 3A – UTILIZATION OF A CONSTRAINED RESOURCE

1. Prioritization Based on Contribution Margin per Minute

To determine which product should be prioritized, we need to calculate the contribution margin per
minute for each product, given that Chef Pierre's time is the constrained resource.

Macarons:

 Contribution Margin per Box of 12 Macarons: $12

 Time Required per Box of 12 Macarons: 18 minutes

 Contribution Margin per Minute for Macarons: 12/18 = $0.67 per minute

Quiches:

 Contribution Margin per Unit of Quiche: $3

 Time Required per Unit of Quiche: 8 minutes

 Contribution Margin per Minute for Quiches: 3/8 = $0.375 per minute

Since the contribution margin per minute for macarons $0.67 is higher than that for quiches $0.375,
Chef Pierre should prioritize producing macarons to maximize profit.

2. Qualitative Factors

1. Customer Preferences: Consider customer satisfaction and preferences. If customers have a

strong preference for quiches, meeting that demand might be important for maintaining
customer loyalty and overall satisfaction.

2. Market Trends: Analyze market trends to see if one product is gaining popularity over the other.
Aligning production with market trends can help in capturing more market share.
 3. Brand Image: The café’s brand might be associated with certain products. If macarons are a
signature item that enhances the café’s reputation, prioritizing them could reinforce the brand
image.

4. Production Complexity: Assess the complexity and stress on Chef Pierre. If making macarons is
significantly more stressful or tiring, it could affect his overall productivity and job satisfaction.

5. Future Growth: Evaluate potential for future growth in sales of either product. If there’s a
foreseeable increase in demand for quiches, investing time in them now could be beneficial.

By considering both quantitative and qualitative factors, Belair Bistro can make a more balanced decision
on which product to prioritize for maximizing profit while also maintaining customer satisfaction and
operational efficiency.