Question

Question 1 Not complete Marked out of 8.00 P Flag question Special Order Nature's Garden, a new restaurant situated on a busy highway in Pomona, California, specializes in a chef's salad selling for $7. Daily fixed costs are $1,710, and variable costs are $4 per meal. With a capacity of 950 meals per day, the restaurant serves an average of 900 meals each day. (a.) Determine the current average cost per meal. Round your answer to two decimal places. (b.) A busload of 30 Girl Scouts stops on its way home from the San Bernardino National Forest. The leader offers to bring them in if the scouts can all be served a meal for a total of $153. The owner refuses, saying he would lose $0.80 per meal if he accepted this offer. How do you think the owner arrived at the $0.80 figure? Current average cost per meal Per meal revenue from Girl Scouts Loss per meal (c.) A local businessman on a break overhears the conversation with the leader and offers the owners a one-year contract to feed 300 of the businessman's employees one meal each day at a special price of $5.00 per meal. Compute the net advantage (disadvantage) of accepting the contract. Only use a negative sign with your answer to indicate a net disadvantage. Otherwise, do not use negative signs with answers. Daily contribution from special order $ Daily opportunity cost Net advantage (disadvantage) Based on your above results, should the restaurant owner accept this offer?

Answer 1

Solution a. Daily Fixed costs $ 1,710.00 Average meals per day 900 meals Fixed cost per unit ($1,710/ 900) Add: Variable cost per meal Average cost per meal ($1.90 + $4.00) $ $ $ 1.90 4.00 5.90 Solution b. Girl Scouts offered total meal value $ 153.00 No of girls in scout 30 Per meal revenue from Girl scouts ($153/30) $ 5.10 Current average cost per meal (solution a) Per meal revenue from girl scouts Loss per meal $ $ $ 5.90 5.10 0.80 Solution c. Currently 900 meals are sold on average, if the offer is accepted full capacity of 950 meals per day will be utilised, however 50 are of spare capacity while 250 units will be opportunity costs. Contribution = Sale value per meal - Variable cost per meal Current Contribution per meal ( $7 - $4 ) = $3 per meal Contribution from 250 meals = 250 meals x $ $ 750.00 Contribution per meal from special order ($5 - $4) = $1 per meal Contribution from 300 meals = 300 meals x $ $ 300.00 Daily contribution from special order Daily opportuinty cost Net disadvantage $ 300.00 $ 750.00 $-450.00

As there is a loss in contribution , the offer should not be accepted the restaurant.

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