Activity-based costing in restaurants

Activity-based costing in restaurants

Activity–based costing in restaurants



1. Introduction

Interest in cost and management accounting practices in the restaurant industry is rising (Raab et al., 2009; Annaraud et al., 2008). Pavesic (1985) has initiated research in pricing and cost accounting for restaurants, introducing the concept of profit factor

(PF) in menu engineering (ME). Prior studies, such as the one presented in Chan and

Au (1998) investigate the implications of not incorporating overhead costs in menu–item profitability analyses in restaurants in Hong Kong. Since then, a number of researchers have examined the application of contemporary cost and management accounting techniques, and particularly activity–based costing (ABC) in a restaurant

environment ... Show more content on Helpwriting.net ...To this end Kaplan and Cooper (1998) suggest that service companies are ideal candidates for ABC. One reason for this is that in the services industry a great percentage of total cost is labour cost and processes are highly variant (Kostakis et al.,

2008). Studies have shown the possible use and potential benefits of ABC in the hotel industry (Kostakis et al., 2011; Berts and Kock, 1995; Noone and Griffin, 1999).

New techniques assisting large–scale ABC implementation have also been developed in recent years (Kaplan and Anderson, 2004).



The restaurant industry is facing great challenges today, mainly due to the highly competitive environment and the diverse needs of the customers. Restaurants have to achieve a balance between serving these needs, and pricing their menu items to achieve adequate profitability levels (Raab et al., 2009).Traditional costing systemsand simplistic pricing approaches were very popular within the restaurant industry. Overhead cost and operating expenses were usually excluded and prices were a function of food cost, as well as customer demand, historical prices and other factors. This method has the evident disadvantage of leading to misleading information about individual menu items.

Research

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