BELAIR BISTRO

Belair Bistro is a French bistro located in Toronto. The Bistro is essentially made up of a sit-down area
with service and a daily menu for lunch and dinner while the front of the bistro is a take-out bakery and
café. The manager of the Bistro, Mr. Gabriel, is contemplating some important business decisions for
the bistro and came to you for assistance in determining what costs are relevant to making these
decisions.

SITUATION 1: KEEP OR DROP A PRODUCT / SEGMENT

For the past two years, Belair has been operating an online platform through their website that allows
customers to place orders online and have the food delivered to them within 45 minutes. The orders
are then prepared in the same kitchen by the same staff operating the restaurant. The order is then
delivered by a delivery person with the Belair Bistro motorcycle that was purchased for this segment.
The online delivery platform is managed from a small office located at the back of the restaurant.
Belair’s manager, Mr. Gabriel, is considering dropping this segment as he believes it is not profitable.
The maintenance of the IT platform has been expensive, and he also believes that the online orders take
up a significant portion of his time while making up a small portion of the revenues. Gabriel believes his
time could be put to better use with other projects and initiatives for the Bistro as well as managing the
current operations. Gabriel indicates that staff turnover has been higher this past year and he feels
partly responsible as he has not been able to be very involved with supervising and coaching the staff.
The feedback on the online the platform has been good and he noted that many new customers of the
café indicated that they discovered the café after they saw the website and ordered delivery from the
online platform.
Gabriel provides you with the following financial information of the Bistro and asks you to help him
decide whether they should keep or drop the online delivery segment.
Additional information about the restaurant and the online delivery segment is provided on the next
page.

REQUIRED:
1. Identify the relevant costs to the keep or drop decision and prepare a computation
of the loss/gain that would result from dropping the online segment.

2. What qualitative factors would you consider in this decision?

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FINANCIAL INFORMATION – BELAIR BISTRO
BELAIR BISTRO - SEGMENTED INFORMATION FOR THE YEAR ENDING 20XX

TOTAL BISTRO CAFÉ ONLINE/DELIVERY

Sales 1,675,250 1,125,000 341,250 209,000
Variable Costs 1,060,500 689,000 204,700 166,800
Contribution Margin 614,750 436,000 136,550 42,200
CM % 37% 39% 40% 20%
Fixed Expenses
Salaries 226,850 189,250 25,600 12,000 1
Advertising 10,000 7,500 - 2,500 1
Utilities 24,500 18,375 3,675 2,450 2
Depreciation 55,000 41,250 8,250 5,500 2
Insurance - Building 12,000 9,000 1,800 1,200 2
Manager Salary 70,000 42,000 10,500 17,500 3
IT Maintenance - Delivery
Platform 16,000 - - 16,000
200,400 128,625 86,725 (14,950)

Note 1: The Salaries and Advertising expenses are direct and traceable costs of each segment.
Note 2: These common fixed costs were allocated based on the proportion of the square footage of the
building occupied by each segment. The Insurance pertains to the building while the depreciation is the total of
the depreciation for the building (50%), kitchen equipment (35%) and the motorcycle (10%).
Note 3: Gabriel indicated that he estimates he spends 60% of his time working at the Bistro, 15% for the café,
and 25% for the online delivery platform. His salary was allocated based on this basis.

ADDITIONAL INFORMATION ABOUT THE RESTAURANT & ALLOCATION BASIS:

Plan of the restaurant:

As the kitchen is shared between all 3 units, the % of square footage was computed based on the relative
proportion of all 3 segments, excluding the kitchen.

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SITUATION 2 – MAKE OR BUY A PRODUCT

Pierre, the pastry chef of Belair Bistro indicates that he has been approached by Le Louvre Bakery. Le
Louvre indicated that they could bake all the 150 croissants the café needs daily for a cost of $1.15 per
croissant. Pierre is considering this offer as croissants are very time consuming. They take on average
3 hours of his time to make each morning. He feels that he could use this time to make some pies and
cakes that can be sold at the café.

Pierre has summarized the information from the offer below:

Offer from Le Louvre:

• To bake 150 croissants each day at $1.15 per unit.
• A daily delivery charge of $40 would be applied.
• Any change to the quantity ordered needs to be communicated at least 48 hours in advance. A
change in the order quantity would result in a $15 administrative charge.
• The current terms are valid for 1 year, at which point the contract can be renegotiated.

The current direct materials of making the croissants is $0.95. The variable costs associated with the
croissants are estimated at 10 cents per croissant. Pierre is not paid on an hourly basis, so cutting the
croissant line would not affect the salary expense.

Pierre believes that he could make 25 pies with the time he would save by no longer making croissants.
On average, the pies would provide a contribution margin of $3.5 per pie. Pierre is very excited about
this opportunity as he feels that making pies allows him to be much more creative than making
croissants. Pierre also indicated that the croissants use a special oven that could be sold as it would no
longer be needed. The oven was purchased six years ago for $8,500. However, as there is not a large
re-sale market for used bakery stoves, Pierre estimates that they could only get $2,500 if they sold it
today.

REQUIRED:
1. Identify the relevant costs to the make or buy decision of the croissants. Prepare a
computation to identify the gain / loss that would result from outsourcing the
croissant production to Le Louvre.

2. What qualitative factors would you consider in this decision?

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SITUATION 3A – UTILIZATION OF A CONSTRAINED RESOURCE

Belair Bistro identified that the café’s main bottleneck is Chef Pierre’s time.

The manager is currently reviewing the quantity of each item that should be produced on a daily basis.
During the afternoon, Pierre usually spends his time baking macarons and quiches. Everyday, the café
sells out of the boxes of macarons and quiches. The demand for both products therefore far exceed
the daily production of the café.

The following information about the products is provided to you by the manager:

Box of 12 Quiche
macarons
Selling Price per unit $30 $18
Variable Costs $18 $15
Contribution Margin $12 $3

Chef Pierre explained that the macarons are an art and require a lot of time and precision to make. He
therefore spends 18 minutes of his time on each box of 12 macarons while a quiche only requires 8
minutes of his time.

REQUIRED:
1. Which product should be prioritized by Chef Pierre in order to ensure that Belair
has the highest profit?
2. What qualitative factors should you consider when selecting which product should
be prioritized?

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 SITUATION 3B – UTILIZATION OF A CONSTRAINED RESOURCE – DATA
ANALYTICS WITH EXCEL SOLVER

1. Find the optimal product mix for Belair Bistro considering all products made by Pierre.
In your analysis, you must consider the following constraints:

i. You cannot produce more than the estimated demand for the product
ii. You must produce at least 75 croissants each day
iii. The number of quiches should equal the number of sandwiches.
iv. The total Direct Labour minutes cannot exceed 3,404 minutes.

Below is the current production of Belair Bistro.

Macaron
(box) Cookies Pie Muffin Croissant Danish Bread Quiche Sandwich Scones Crème Brule Cake
CM per unit $12 $1 $5.70 $0.70 $1.20 $1.20 $0.95 $3 $1.25 $0.45 $2.40 $14
DL Minutes 18 3 10 1 6 7 0.6 8 3 1.2 6 25
CM / DLM $0.67 $0.33 $0.57 $0.70 $0.20 $0.17 $1.58 $0.38 $0.42 $0.38 $0.40 $0.56
Demand 80 75 37 60 85 30 140 25 35 20 24 36
Current Production 50 75 40 45 75 30 100 20 20 20 20 30

Copyright © 2020 by Catherine Barrette. Published by John Wiley & Sons, Inc.