case study

HTM 341 Name: Extra point opportunity – Never Ending Pasta Pass Olive Garden had a flash sale of 1,000 Never Ending Pasta Pass on September 8th, 2014. Please read the article titled “Unlimited Pasta” in the Homework folder. Your goals are to (1) estimate the cost of the whole promotion and (2) use the CVP equation to find out the required incremental revenue from the promotion for the promotion to breakeven. • This assignment must be typed and due on October 14th (Wednesday) at the

beginning of the class. • This is an individual work. No discussion with others allowed. • This assignment is worth 10 points of extra credit. • There are no standard answers. But you have to explain your logic behind the

estimation and assumptions. • You can use the Internet or the library to search for any information needed.

1. Please estimate the cost of the Never Ending Pasta Pass promotion. To simplify the calculation, assume everyone is going to order the most expensive pasta item on the menu and not ordering other items. You have to cost the recipe and estimate the number of portions a person can eat during the promotion period. You can use any recipe as long as it produces the chosen menu item. You have to search the ingredients’ market prices. Include the recipe costing and show the work. Make sure you explain how you estimate the number of portions a person can eat during the promotion period.

2. What is the additional revenue required for the promotion to breakeven? You need to estimate the contribution rate of Olive Garden. Assume Olive Garden has the same cost structure as its parent company, Darden Restaurants Inc. Please use the attached income statement to estimate the contribution rate. Describe the steps you took to arrive at the contribution rate and the rationales behind these steps. Once you have the estimated promotion cost and contribution rate, use the CVP equation to calculate the required additional revenue. Assume the promotion food cost (estimated in step 1) is a fixed cost for this promotion project.

DARDEN RESTAURANTS INC Quarterly Income Statement (10-Q) (In millions, except per share data) Three Months Ended Feb.

23, 2014 Sales $2,233.10 Costs and expenses: Cost of sales: Food and beverage 697.20 Restaurant labor 702.90 Restaurant expenses 360.80 Total cost of sales $1,760.90 Selling, general and administrative 209.30 Depreciation and amortization 108.50 Interest, net 33.10 Total costs and expenses $2,111.80 Earnings before income taxes 121.30 Income taxes 11.80 Earnings from continuing operations

$109.50

Earnings (losses) from discontinued 0.20 Net earnings $109.70