The Application of Activity-Based Costing in a Quick Service Restaurant

ABSTRACT

Traditional cost accounting systems in the manufacturing sector have been replaced in recent years by Activity Based Costing (ABC) systems. This study demonstrates the incorporation of ABC data into traditional Contribution Margin (CM) methods and provides food service managers with an improved tool for cost and profitability analysis. The study uses ABC data collected from a Quick Service restaurant (QSR) in the Southeastern United States. ABC methodologies, using qualitative methods, adapted from an established model for full-service restaurants, allowed for the tracing of overhead costs to individual menu items. Results reveal that ABC is a superior method for establishing overall menu profitability, and that a restaurant manager's menu management decisions will change dramatically if he or she is confronted with differing results from a contribution margin analysis and an ABC approach.

KEYWORDS:

• Restaurants
• profitability
• activity-based costing
• cost accounting
• menu engineering
• quick service restaurant