Restaurants such as Subway generally offer a limited number of food categories (subs, salads, wraps, etc.) that are similarly priced. On the other hand, a restaurant such as Applebee’s will have a broader menu in which each entre is individually priced. Consider the “behind the scenes” operation of each restaurant.

Required:

1. Assuming that the prices reflect the restaurants’ cost, explain why these two restaurants price their products so differently.

2. How might a Subway store’s overhead differ from Applebee’s? How could these differences impact the restaurants’ costing systems?

3. Briefly explain a process that each might use to estimate product costs. Include overhead costs as well as whether/how those might be pooled. For any cost pools, identify an appropriate cost driver.