You have been notified by your purchasing department that the availability of one of the substantial ingredients
Question:
You have been notified by your purchasing department that the availability of one of the substantial ingredients of your menu item is impacted by an unusually cold and snowy winter for a period of at least six months. The cost of the ingredient will now increase by 30%. This unexpected supply chain issue has created havoc for budgeted profits and costs. Create a “before and after” computation scenario to show how the impact of this change will impact operating income assuming all other variables remain constant. Review Exhibit 7-1 for a sample computation format (Datar & Rajan, 2018, p. 251).
In a business with slim margins, 30% is tough to absorb even on a short run basis. How might your company be able to react to the change? Are there opportunities to offset this extra cost with a price increase, maintain gross margin, or offer the product to consumers at the same price currently? Model alternatives and present your calculations and solution in a supporting table included in your paper.