How does automated technology in fast food restaurants change the cost structure, break even, and degree of operating leverage?

Source: http://www.nytimes.com/2014/05/28/technology/googles-next-phase-in-driverless-cars-no-brakes-or-steering-wheel.html?_r=0

Source: New York Times, May 27, 2014

Change is rapidly occurring in the restaurant industry due to a combination of higher labor costs, increased technological capabilities, and other factors.

Protesters across the world are calling for fast food restaurants to raise their wages, arguing that the current wages paid to workers are not enough to survive on. Various states and cities have passed legislation to require higher minimum wages.

In the meantime, some restaurants have begun experimenting with technology to reduce the number of restaurant workers needed.  For example, Panera Bread just spent millions to develop self-service ordering kiosks for all of its restaurants within the next few years.  Chili’s has invested in tableside tablets for customers to use for ordering food and making payment.

In restaurant delivery (i.e., pizza), self-driving cars or drones could be used to make deliveries, replacing delivery drivers.

Questions

  1. The hourly wages of a typical fast-food worker would be considered what type of cost (fixed, variable, or mixed)?
  2. How will increased labor costs impact a restaurant’s break even point?
  3. The costs of self-service ordering kiosks or tablets would be considered what type of cost (fixed, variable, or mixed)?
  4. Would you expect a fast food restaurant’s cost structure to shift in the future due to automation to be more fixed costs or more variable costs?  Why?
  5. How does this shift in cost structure due to automation impact a typical fast food restaurant’s break even point in sales dollars?  Explain.
  6. How does this shift in cost structure due to automation impact a typical fast food restaurant’s degree of operating leverage?  Explain.

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 via a link to this site OR by distributing the student handout below. 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 (doc) (pdf)  (contains entire blog posting + discussion questions)
  • PowerPoint file (brief article overview + discussion questions)
  • YouTube video (narrated article in shareable YouTube link)

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 3.0 Unported License.

About Dr. Wendy Tietz, CPA, CMA, CGMA

Dr. Wendy Tietz is a professor of accounting at Kent State University in Kent, Ohio, USA. She is also a textbook author with Pearson Prentice-Hall.

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