Question

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 $1,100, and variable costs are $4 per meal. With a capacity of 550 meals per day, the restaurant serves an average of 500 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 $159. The owner refuses, saying he would lose $0.90 per meal if he accepted this offer. How do you think the owner arrived at the $0.90 figure?

(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 $5.10 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	Answer
Daily opportunity cost	Answer
Net advantage (disadvantage)

Answer 1

a)

Fixed cost	1,100.00
Variable cost	2,000.00
Total Cost	3,100.00
Number of Meals	500.00
Average cost per meal	6.20

b)

Price per meal	159.00
Number of meals offered	30.00
Average cost per meal	5.30
Cost per meal	6.20
Cost per meal offered	5.30
Difference	0.90

c)

Daily contribution from special order (300 x 5.10)	1,530.00
Daily opportunity cost (300 x 4)	1,200.00
Net advantage	330.00