Sixty employees (all CPAs) of a local public accounting firm eat lunch at least twice weekly at a very popular pizza restaurant. The pizza restaurant recently began offer- ing discounts for groups of 15 or more. Groups would be seated in a separate room, served individual bowls of salad costing $2 each, pitchers of root beer costing $3 each (each pitcher has a five-glass capacity), and medium, two-topping pizzas for

$10 (ten slices each). The food would have to be ordered in advance.

After some detailed polling among the 60, four types of eaters were identified: two types of light eaters and two types of heavy eaters. The consumption patterns for each

 

 

 

 

 

 

 

group are given (slices of pizza, glasses of root beer, and bowls of salad): Light Eaters (Group A): A1 = (2,2,1) and A2 = (3,3,1); Heavy Eaters (Group B): B1 = (6,3,1) and B2 = (7,2,1). There are an equal number of CPAs in each of the four groups.

 

Required

1.    Calculate the average lunch cost for each CPA in each of the two groups, A and

B. Compare this to the ABC cost assignments. Discuss the merits of grouping based on similarity. Discuss the analogy to multiple-product value streams.

2.    Suppose that members of the heavy-eating group (Group B) decided that they were eating more than necessary for their health and well-being and decided to reduce their total calories. They therefore agreed to reduce consumption of pizza by one slice and consumption of root beer by one glass for each member of the group. Relative to the original order, how much extra capacity exists? If the excess capacity is eliminated by reducing the order, what is the new average cost? Suppose that the decision is to use the extra capacity to invite four guests (two of Type B1 and two of Type B2) to lunch (at the cost of the CPAs). If the original order is used as the benchmark cost, what is the extra cost of the guest program? Comment on the conceptual significance of this for manufacturing firms.