Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 3

Target Costing Using Quality Function Deployment (QFD) Rick’s is a popular restaurant for fine dining. The owner and chef, Rick Goetz, is pleased with his success and is now considering expanding his existing restaurant or perhaps opening a second restaurant. Before making his decision, Rick wants to find out more about his competitive position. There are three other restaurants that compete directly with him on food quality and price. Rick knows that his profitability depends on his ability to provide a satisfying meal at the market price. His first step is to gather some information about his customers, using an independent market research firm, which informed him that his customers were looking for taste, comfort (the ambiance, service, and overall presentation of the food), and enjoyment (the distinctiveness of the dining experience, a degree of excitement). He was surprised to find that comfort and enjoyment ranked highest.

First: Customer Criteria and Ranking
	Importance	Relative Importance
Taste	50	16.7%
Comfort	100	33.3
Enjoyment	150	50.0
Total	300	100.0%

Next, he worked with his key wait staff and chefs to try to identify the three main components, and related cost, of the service Rick’s provided:

Second: Components and Cost
Components	Cost	Percent of Total
Menu and Food Preparation	$ 8	30.77%
Wait Staff	12	46.15
Food Ingredients	6	23.08
Total	$ 26	100.00%

Having the customer criteria and components, Rick now again worked with his staff to assess how each component contributed to the desired customer criteria.

Third: Determine How Components Contribute to Customer Satisfaction
	Customer Criteria
Components	Taste	Comfort	Enjoyment
Menu and Food Preparation	30%	20%	50%
Wait Staff	40	60	30
Food Ingredients	30	20	20
	100%	100%	100%

Required

1. Using the information Rick has developed, determine the importance index for each component (menu and food preparation, wait staff, and food ingredients).

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2. Compare your findings in Part 1 to the cost of the components. What conclusions can you draw from this comparison?

Step 1 of 2

1.?The calculations are shown below: