The B Company provides an onsite cafeteria for employees. The company charges employees a flat price...

The B Company provides an onsite cafeteria for employees. The company charges employees a flat price of $5.75 per meal and serves 20,000 meals a year. The latest financial report indicates that the cost per meal includes variable costs (food and labor) of $4.00 per meal and fixed costs of $1.10 per meal. An outside catering firm has offered to take over the cafeteria function and charge B Company $3.75 per meal. If the cafeteria is outsourced 10% of the fixed costs can be eliminated. In addition, the space used for food preparation can be used for another purpose that will generate $3,500 in income a year for the cafeteria.

Required: Assuming the company outsources the cafeteria function, the volume of meals and flat price per meal remains the same, what is the financial impact of accepting the outsourcing offer? In addition, in your answer make sure to indicate whether the financial impact would be an increase or decrease in cafeteria income.

Expert Solution

Cafeteria income will increase by sourcising food from outside.

ekkarill92 answered 1 year ago

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