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 $2,000, and variable costs are $4 per meal. With a capacity of 1,650 meals per day, the restaurant serves an average of 1,600 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 $135. The owner refuses, saying he would lose $0.75 per meal if he accepted this offer. How do you think the owner arrived at the $0.75 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 $4.90 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? OThe restaurant owner should accept the offer. OThe restuarant owner should not accept the offer.

Answer 1

a.

Current average cost per meal :

Variable cost	$4
Fixed cost ($2,000/1,600)	1.25
Average cost per meal	$5.25

b.

Current average cost per meal	$5.25
Per meal revenue from girls scout ($135/30)	4.5
Loss per meal	$0.75

c.

Daily contribution from special order (300*$0.90)	$270
Daily opportunity cost (250*$3)	750
Net advantage (disadvantage)	-$480

The restaurant owner should not accept the offer.