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? The restaurant owner should accept the offer. The restuarant owner should not accept the offer.

Answer 1

Requirement (a) :

Current sales = 1600 meals per day

Current Fixed expense = $2,000

Average fixed cost per meal =2000/1600 = $ 1.25 per meal

Variable cost per meal =$4.0 per meal

Total average cost per meal:

=1.25+4

=5.25 per meal

Requirement(b):

Total order price for 30 meals = $135

per meal revenue from girl scouts = 135/30 = $ 4.50 per meal

  

Current average cost per meal	$5.25
Per meal revenue from Girl Scouts	$4.50
Loss per meal	$0.75

Requirement(c) :

Restaurant was earning :

Price per meal   $.7.00

Less.

Variable cost ($4.00)

Contribution $3.00 per meal

Now, offer recieved for 300 meals @4.90 per meal which gives a contribution @ $0.90 per meal.(4.90-4)

As the total capacity of restaurant owner is 1650 meals a month, if he has to accept the offer, the idle capacity of 50 meals (1650-1600) are used and also it must forgo its normal sales of 250 meals (300-50).

Daily contribution from special order((4.90-4)*300)	270
Daily opportunity cost((7-4)*250)	750
Net advantage (disadvantage)	-480

Net disadvantage with acceptance of offer= - $480

Therefore, the offer should not be accepted.