Question

A new restaurant situated on a highway in 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?

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 $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	$___
Daily opportunity cost	_____
Net advantage (disadvantage)	$_____

Based on your above results, should the restaurant owner accept this offer?

Answer 1

a
	Particulars	Calculation
	Variable cost for 500 Meals @ $ 4	500 X4	2,000
	Fixed cost	given	1,100
	Total Cost		3,100
	Number of Meals	given	500
	Current average cos per Meal	$3,100/500 Meals	6.20
b
	Offer for 30 Meals		159
	Current average cost per meal		$6.20
	Per meal revenue from Girl Scouts	159/30	$5.30
	Loss per meal	$6.20 - $5.30	$0.90

Particulars	Calculation
Revenue from 300 meals @5.1	300 X 5.1	1,530
Variable cost for 300 Meals @ $ 4	300 X 4	1,200
Daily contribution from special order		330
Revenue from 300 meals @7	300 X 7	2,100
Daily opportunity cost	2100-1200	900
Net Disadvanage		-570