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Wendy's Chili: A Costing Conundrum

Brownlee E.

Wendy's Chili: A Costing Conundrum






This case deals with numerous business issues, including those pertaining to leadership, strategy, marketing, cost accounting, and management control. One central issue is how to allocate the cost of a significant portion of the ground beef used in making chili. The problem arises because much of the meat used in making chili comes from overcooked hamburger patties that cannot be served to customers as hamburgers. One could argue that none of this meat cost should be assigned to chili because those patties cannot be served as hamburgers and would be thrown away if it weren't for chili. On the other hand, overcooked hamburgers are perfectly acceptable as chili ingredients. In fact, the chili recipe specifically calls for a specific number of cooked hamburger patties per batch. One could argue, therefore, that the full cost of the overcooked hamburger patties should be charged to chili. Whatever allocation procedure is used will affect the profitability of both hamburgers and chili. Another central issue
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