How do the added costs to produce BK’s new lower-calorie fries affect the fry breakeven point?

Burger King has launched a new kind of French fries called “Satisfries.” These new fries are made with a batter that is less porous and absorbs less oil than Burger King’s regular fries, resulting in 20 per cent fewer calories in Satisfries than regular fries.  Satisfries contain 340 calories versus 410 calories in regular fries.

Consumers pay about $0.30 more for Satisfries than for the regular fries.  It is speculated that Satisfries have basically the same ingredients as regular fries, including the same potatoes and oil.  The same process is used to cook Satisfries as regular fries. The only change is in a few minor ingredients (proprietary information not released to the public) resulting in a thinner batter.

The new fry batter was developed over a two-year period with McCain Foods, which cannot sell the fries to any other fast-food restaurants.

Questions

1)      What variable costs may be incurred in the process of making and selling Satisfries at Burger King?

2)      What fixed costs may have been incurred by Burger King in the development of Satisfries?

3)      What fixed costs may be incurred in the process of making and selling Satisfries at Burger King?

4)      Based on your thoughts about the variable and fixed costs structure related to Satisfries, would you expect the breakeven point of Satisfries to be higher or lower than that of Burger King’s regular fries?  (Note that you must make several assumptions to answer this question; you will not be able to answer it with 100% certainty because of the proprietary nature of the cost structure at Burger King. Include your assumptions in your response.)

Instructor Resources

These resources are provided to give the instructor flexibility for use of Accounting in the Headlines articles in the classroom. The blog posting itself can be assigned.  Alternatively, the PowerPoint file below contains a bullet point overview of the article and the discussion questions.  The YouTube video link below is a narration of the blog post article (no discussion questions are included in the YouTube video; those can be assigned separately.)

• Student handout (pdf) (contains entire blog posting + discussion questions)
• PowerPoint file (brief article overview + discussion questions)
• YouTube video (narrated article in shareable YouTube link)

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