ØABED3100: Cases in Finance
Module 1 - Cost-volume-profit analysis
Case Study 4 – Lezzet Turkish Kitchen
Lezzet is a Turkish restaurant in Central London popular among eco-conscious Londoners. Lezzet is
open to its guests for 313 days a year. Following is a simplified version of its income statement for the
year ending June 30, 2026.
Sales revenue
Cost of sales, all variable
Gross profit
Operating expenses
Variable
Fixed
Administrative expenses, all fixed
Net income
£
3 916 250
2 067 550
1 848 700
322 380
385 350
601 400
539 570
Lezzet serves dinner and lunch along with selling take-away. The average price for dinner, lunch and
take-away is £40, £20, £15 respectively and the sales mix for dinner, lunch and take-away has
remained 1:2:3 over several years. The dinner, lunch and take-away have ESG Scores of C, B, and A
respectively under LSEG ESG rating system. The following three proposals are under consideration of
the owner of Lezzet who hires you as consultant to help take a good decision that is beneficial for
Lezzet in the long run.
i. An extra advertising campaign focusing on dinner segment with an expenditure of £20 000
would increase the average daily volume of dinners by 10%. However, this would have a
negative impact on take-away. How much drop-off in the volume of take-away Lezzet could
afford and still consider this campaign as viable?
ii. An extra advertising campaign focusing on lunch segment with an expenditure of £15 000
would increase the average daily volume of lunch by 20% and simultaneously would reduce
daily volume of take-away. How much drop-off in the volume of take-away Lezzet could endure
and still consider this campaign as viable?
iii. Lezzet uses premium quality eco-certified ingredients, and the cost of food makes up 25% of
the cost of sales. Use of average noncertified ingredients instead of premium eco-certified
ingredients could cut the food cost by 20% and is likely to increase customers’ leftover food
waste by 5%. Assume that Lezzet uses average quality ingredients and neither discloses nor
does it change its prices. How much drop-off in the current volume it could bear and still
maintain the same current net income?
You are aware of the role of cost components, sales mix, break-even volumes, and qualitative factors
in such decisions. Therefore, you have a detailed discussion with the owner who informs you that
Lezzet has four chefs and 13 trainees who work for eight hours per day and whose salaries account for
50% of the cost of sales. He further points out that it is really very difficult to find expert chefs in
Turkish cuisine, hence no possibility of hiring any new chef and quickly adds “your plan should be
considerate of the limitation we have with the kitchen time”. In response to your question about the
‘kitchen time’ per meal, the owner informs you that on the average a dinner takes 20 minutes, a lunch
requires 15 minutes, and a take-away needs 10 minutes of ‘kitchen time’. “Along with analyzing your
three proposals, I would put forward a proposal that may help improve your profitability as I sense this
‘kitchen time’ is a quite a useful information. Moreover, I will also provide ethical, environmental,
social, and governance implications of the proposed plan. In my opinion, such a perspective is likely to
increase stakeholders’ trust in Lezzet and simultaneously enhance its profitability.” “Looking forward
to your report, bye for now”, says the owner and leaves.