What does a case study question look like?
As you are aware, SoPa's tenth restaurant is due to open on 1 July 2026. The SMT originally decided to outsource maintenance of the kitchen equipment in the new restaurant — including the grills, ovens, refrigeration units and cooking equipment — and has signed a 3-month contract for this. However, it has been suggested that in 3 months' time, SoPa could set up its own internal kitchen equipment maintenance team.
This team could take over responsibility for some or all aspects of equipment maintenance, including regular servicing and emergency repairs.
Raj Patel, Finance Director, believes this would be an ideal opportunity to trial the use of zero based budgeting (ZBB) to establish a budget for kitchen equipment maintenance costs at the new restaurant.
Please prepare briefing notes for the SMT which explain:
How a ZBB approach can be applied to create a budget for kitchen equipment maintenance costs at the new restaurant. [sub-task (a) = 26%]
The two benefits and two challenges of using ZBB to prepare this budget. [sub-task (b) = 24%]
Secondly, Paolo has also been investigating the possibility of opening SoPa's first restaurant in Neeland, a neighbouring country to Zeeland. This would be SoPa's first venture outside of Zeeland and demand levels are highly uncertain given SoPa has no brand presence or operating history in Neeland. A key decision is how many covers to plan for in the first 6 months of operation. If SoPa plans for too many covers, fixed staffing and ingredient costs will be over-committed relative to actual demand.
If actual demand exceeds the planned level, additional covers can be accommodated but only at a significant cost premium due to the need to bring in additional staff and ingredients at short notice. I have prepared a payoff table of total costs at different planned cover levels to help with this decision. This payoff table and associated statistical measures are included in Table 1 (attached).
Please also explain:
The meaning of the expected values, standard deviations and coefficients of variation shown in Table 1. [sub-task (c) = 24%]
Please also explain how to make the decision about planned cover level using a risk averse and a risk seeking approach. [sub-task (d) = 26%]
Thank you,
Jack Griggs
Table 1 — Payoff table and statistical measures based on total cost (Neeland restaurant, first 6 months)
| Demand level (covers) | Probability | Planned cover level (Z$) | ||
|---|---|---|---|---|
| Option 1: 8,000 | Option 2: 9,500 | Option 3: 11,000 | ||
| 8,000 | 0.35 | 32,000 | 48,500 | 65,000 |
| 9,500 | 0.50 | 47,000 | 38,000 | 54,500 |
| 11,000 | 0.15 | 62,000 | 53,000 | 44,000 |
| Statistical measure | Option 1: 8,000 | Option 2: 9,500 | Option 3: 11,000 |
|---|---|---|---|
| Expected value of cost (Z$) | 44,000 | 43,925 | 56,600 |
| Standard deviation (Z$) | 10,173 | 6,102 | 7,121 |
| Coefficient of variation | 0.231 | 0.139 | 0.126 |
