Activity Based Costing: Texas Roadhouse Restaurant, Research Paper Example

This case study is based on how Texas Roadhouse Restaurant would assimilate Activity Based Costing (ABC) in its products and services. Activity based Costing model is meant to indentify activities of the restaurant based on the different products and services which they offer to cost them. The restaurant would use the model to enable it understand the product and customers cost hence being able to increase costs of under valued products and services and reduce those which are overprices.

The product which would use Activity Based Costing is Fresh Baked Breads whose activities which would be apportioned cost are purchasing of ingredients, storage of the ingredients, baking, packaging, delivering for sales, other overhead costs incurred and the percentage of profit earned by selling the bread. By doing so the cost of Fresh Baked Breads will be an appropriate and the restaurant will be assured of it being accurate, profitable and it is not over or under priced.

The two activities for Activity Based Costing which will be evaluated in this case study are variable costs and indirect cost. The cost drivers of variable cost will be varying depending on how the activities are being done for example when the activities of producing the breads reduces the raw materials used and other costs incurred based on the unites baked will differ. While, Indirect Cost are cost which are incurred and benefit more than one product or activities and are much difficult to predict them (Mitchell & Price, 2003). Such costs incurred would be like service cost of ovens, storage handling or even processing for the increased orders of breads. The application rate for each of the activity of the cost drive which would cause change of activity cost would be 30 % for indirect cost and 10 percent for the variable cost because variable cost difference has a direct costing effect of each unit.

Once Texas Roadhouse Restaurant has adopted the Activity Based Costing it will be able to; indentify products or activities which are inefficient. They will also be able to allocate more resources to products and activities which are profitable and indentify unnecessary cost and eliminate them as well as control the costs incurred.

References

Mitchell, J & Price, A. (2003). Economics: Principles in Action. New Jersey: Upper Saddle River