The Blue Parrot is an expensive restaurant in midtown open only for dinner. Entrees are set at a fixed price of $42. In a typical month, the restaurant will serve 3,600 entrees. Monthly variable costs are $61,200, and fixed costs are $31,000 per month. Customers or waiters send back 8% of the entrée because of a defect, and they must be prepared again; they cannot be reworked. The restaurant owners hired a qualified Black Belt to undertake a Six Sigma project at the restaurant to eliminate all defects in the preparation of the entrees (i.e. 3.4 DPMO).
1- Compare the profit in both situations, with and without defects, and indicate both the percentage decrease in variable costs and the percentage increase in profits following the Six Sigma project.
2- Assuming that the restaurant paid the Black Belt $25,000 to achieve zero defects, and the restaurant owners plan to amortize this payment over a three-year period (as a fixed cost), what is the restaurant return on its investment (without applying an interest rate)?
3- Discuss some other aspects of quality improvement at the restaurant that might result from the Six Sigma project