Wendy's Chili: A Costing Conundrum

Abstract

This case poses the seemingly simple and straightforward question, "How much does it cost Wendy's to make a bowl of chili?" Because most of the meat used in making chili comes from overcooked hamburgers, however, a question of cost allocation arises. Wendy's is considering adding a salad bar to its "limited menu" and is wondering whether it should drop an existing product. Such a decision leads to an evaluation of present-product profitability.

Excerpt

UVA-C-2206

Rev. Feb. 18, 2014

WENDY'S CHILI: A COSTING CONUNDRUM

What happens to a successful company when it loses its founder, senior chairman, advertising icon, and beloved leader? That was the question being asked about Wendy's International, Inc., in January 2002 after Dave Thomas, 69, passed away from cancer. In the words of Jack Schuessler, the company's chairman and CEO, “Dave was our patriarch. He was the heart and soul of our company.” Without him, the company would never be the same. But Dave Thomas left behind a legacy about values, ethics, product quality, customer satisfaction, employee satisfaction, community service, and shareholder value that provided a solid foundation on which to continue the success the company had experienced for more than 30 years. Still, the patriarch was gone, and the future was uncertain.

How It Began

Wendy's International, Inc., was founded by R. David Thomas in Columbus, Ohio, in November 1969. Prior to that time, Thomas had purchased an unprofitable Kentucky Fried Chicken franchise in the Columbus area, turned it around, and subsequently sold it back to Kentucky Fried Chicken at a substantial profit. He then became a cofounder of Arthur Treacher's Fish & Chips. So, at the time he founded Wendy's, Thomas was no stranger to the quick-service restaurant industry.

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Keywords: profit planning relevant costs profitability, evaluation, cost, management, accounting, control, system