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 $1,200, and variable costs are $4 per meal. With a capacity of 800 meals per day, the restaurant serves an average of 750 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 $150. The owner refuses, saying he would lose $0.60 per meal if he accepted this offer. How do you think the owner arrived at the $0.60 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 $4.50 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

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

Req A:
Fixed cost per day: $ 1200
Meals served per day: 750 meals
Total variable cost: 750 meals @$ 4: $ 3000
Total cost: 1200+ 3000 = $4200
Average cost per meal : Total cost / Meal served = $ 4200 /750 = $5.60
Req B:
Girls offered for 30 meals: $ 150
Average revenue per meal: ($150 /30) = $5 per meal
The loss of $0.60 per meal is arrived at as follows:
Current cost per meal (as computed above)				5.6
Less: Revenue per meal				5
Lloss per meal				0.6
Req C:
Special order: 300 meals
Revnue per meal: $ 4.50 per meal
Variable cost epr meal: $ 4.00 per meal
Contribution per meal: $4.50 - $4.00 = $0.50 per meal
Total contribution earned: 300 meals @$0.50= $ 150
Excess available prior to special order: 50 meals
Lloss of sale to regular customer on accepting the order: 300 -50 = 250 meals
Contribution margin per meal from regular customer lost: 7-4= $3 per meal
Contribution lost: 250 meals @3 per meal = $750
Financial Advantage/ Disadvantage of order:
Dialy contribution from special order:				150
Contribution lost of regular customer				-750
Net disadvantage				-600
Hence, the offer must not be accepted.