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 $1,600 and variable costs are $4 per meal. With a capacity of 1,050 meals per day, the restaurant serves an average of 1,000 meals each day.

(a.) Determine the current average cost per meal. Round your answer to two decimal places.
$Answer

(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 $144. 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	Answer
Per meal revenue from Girl Scouts	Answer
Loss per meal	Answer

(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 $4.75 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

Answer 1

Given information

	$
Selling price per meal	$7
Variable cost per meal	$4
Contribution margin per meal	$3
Daily fixed costs	$1,600
Daily capacity of meals	1,050 meals per day
Present operating capacity	1,000 meals per day

a. Calculation of average cost per meal:

	$
Variable cost of 1,000 meals	$4,000 (1,000 x $4)
Daily fixed cost	$1,600
Total average cost	$5,600
Average meals served each day	1,000 meals
Average cost per meal	$5.60

b. Calculation of loss per meal:

Given information

Total meal cost of 30 Girls = $144

Revenue per meal if it served to girls = $144 / 30 = $4.80 per meal

Current average cost per meal = $5.60

	$
Current average cost per meal (as per above (a))	$5.60
Per meal revenue from Girl Scouts	$4.80
Loss per meal	$0.80 ($5.60 - $480)

c. Computation of net advantage (disadvantage) of accepting the contract:

The restaurant can serve an 1,050 meals per day. The unused capacity will be 50 meals per day (1,050 - 1,000).

Therefore the restaurant will loose the contribution from 250 meals per day from accepting the order.

	$
1. Daily contribution margin from 300 meals ($4.75 - $4) x 300	$225
2. Daily oppotunity cost (250 x $3)	$750
3. Net disadvantage ($225 - $750)	-$525