Case Study: Ontario Sushi Inc. Profitability and Production Analysis

This case study analyzes the financial performance of Ontario Sushi Inc. (OSI), a Japanese restaurant chain in Toronto. The analysis focuses on the declining profitability of OSI and explores potential causes, including a weakening economy, competition, increased supplier costs, and operational errors. The study calculates the optimal production level for various sushi platters, sashimi platters, and bento boxes to maximize profits, considering labor hour constraints. The analysis determines that producing 50,000 sushi platters, 40,000 sashimi platters, and 40,000 bento boxes results in the optimal production level, generating a profit of $385,650. The study also highlights the importance of utilizing labor hours for bento boxes, which are popular with customers. The optimal production level theory is based on assumptions of consistent demand, constant selling prices, and constant holding costs. The case study provides valuable insights into cost analysis, production optimization, and financial decision-making within the restaurant industry.

ANALYSIS
Ontario Sushi Inc. ‘S Toronto restaurant is not meeting profit expectations and as per Jeff, it
could be due to weakening economy which lowers down the purchasing power of people and
hence fewer customers who eat out frequently. He also believes that competition from a new
restaurant “Taco Tuesdays” Could also be one of the major reasons. Suppliers increased prices,
and errors with meal preparation earlier or incorrect orders were also quoted down to be the
reasons for the lower profits. Let’s try and find a balanced level of production for the company in
order to increase its profitability.
Par level of production is the point at which the short term profits are maximized and is
calculated by equating the revenue based on its margin, generated from the sale of the last unit
to the nominal cost incurred to generate it. It is based on quite a number of assumptions and
helps companies to arrive at decisions relating to pricing of their products. It establishes the
relationship between costs and revenues.
The most important question that a company should be able to answer is that will it be sensible,
that in order to increase the sales factor of the goods, the price quotient . should be lowered, even
if it requires to increase the additional costs to produce those units? The optimal production level
helps in answering the same.
As per the calculations in the excel attached, the total cost per unit for each meal boxes in the
case of Ontario Sushi Inc. Shall be as shown in the table below:-
SUSHI
PLATTE
RS
SASHIMI
PLATTE
RS
BENT
O
BOXE
S
TOTAL COST
PER UNIT 10 10 12

The primary concept of the economy is of the opinion that the profits have the tendency to
increase to the maximum at the production level where the nominal revenue accessed from the
selling of one additional unit is equivalent to the marginal cost of producing that extra unit. In the
excel appendix attached, we can observe that due to the labour hours constraints, the optimal
production level can be shown in the table below:-
HEADS
SUSHI
PLATTE
RS
SASHIMI
PLATTE
RS
BENT
O
BOXE
S
TOTAL
Maximum production
quantity as per labour
hours
50000 40000 40000
Total costs on the
basis of available
labour hours 498750 406000 469600 1374350
Sales 600000 560000 600000 1760000
Profits 1,01,250 1,54,000
1,30,40
0 3,85,650

So if there are 50,000 boxes of Sushi platters, 40,000 boxes of Sashimi platters and 40,000
boxes on Bento boxes are produced then there shall be optimal production level and the
company’s profitability shall be $3, 85,650. In order to increase profitability, the company shall
have to utilize the labour hours for production of Bento Boxes more than the other two variants,
as they are the best selling items and are popular with customers because they combine a variety
of foods in one meal.
Optimal production level theory is based on the following assumptions:-
• Demand shall be consistent and constant for all of the products
• Selling price and cost per unit shall be constant
• Holding costs are assumed to be constant and nil in our case
• Setup costs are not considered to be prominent
• No cost savings in case of bulk orders