Question

In: Accounting

Anabelle is the Facilities Manager for a university. She is considering an opportunity that involves renting...

Anabelle is the Facilities Manager for a university. She is considering an opportunity that involves renting food vending machines and placing them in various locations throughout the university. This would allow students and staff to conveniently access a quick range of similarly priced food items for snacking “pick-me-up” purposes. (Assume a non-COVID-19 state of affairs on campus.) As a not-for-profit university, the main aim is to cover all costs. If any profits are made, they will be used to boost student support services.

For the purposes of analysing this opportunity, Anabelle has the following estimates:

Per unit (food item) forecasts:

Average selling price of each food item: $2.00

Average variable cost of each food item: $1.60

Annual fixed cost forecasts:

Rental $12,000

Labour $10,000

Other fixed expenses $2,000

Anabelle has asked you to undertake a cost-volume-profit analysis of the opportunity.

a) Calculate the contribution per unit and the contribution margin ratio.

b) Calculate the break-even point in number of food items and in dollars of revenue.

c) Calculate the sales (in units) needed to earn a target annual profit of $2,000

d) The vending machine owner initially offered Anabelle a fixed rental fee option. However, the owner has since provided another rental agreement option: a $9,000 fixed rental plus 2.5% of revenues from the sale of food items. Calculate the break-even point in units under this option and briefly explain from the university’s perspective which rental agreement option might be preferred. Your explanation should not exceed 100 words.

Expert Solution

Formulas of excel

ekkarill92 answered 1 year ago

The manager of a division that produces kitchen appliances is considering the opportunity to invest in...

The manager of a division that produces kitchen appliances is considering the opportunity to invest in two independent projects. The first is a toaster and the second is a blender. Without the investments, the division will have total assets for the coming year of $14.5 million and after-tax income of $1.58 million. The invested capital required for each investment and the expected operating incomes are as follows: Toaster Blender After-tax operating income $33,750 $44,850 Invested capital 375,000 345,000 Corporate headquarters...

The manager of a division that produces computer hardware is considering the opportunity to invest in...

The manager of a division that produces computer hardware is considering the opportunity to invest in two independent projects. The first is a monitor and the second is a CPU. Without the investments, the division will have total assets for the coming year of $14.5 million and after-tax income of $1.58 million. The invested capital required for each investment and the expected operating incomes are as follows: Monitor CPU After-tax operating income $33,750 $44,850 Invested capital 375,000 345,000 Corporate...

Mary Kate is a project manager in the IT department for a university. She has been...

Mary Kate is a project manager in the IT department for a university. She has been asked to manage a project to create a faculty intranet. The university has multiple campuses in various locations, and professors and other faculty need to be able to easily post questions, schedules and other documents to share in a secure environment. Mary Kate performed the following steps to begin the intranet project. She performed a needs analysis. Mary Kate interviewed the university faculty to...

Julie Brown is in her late 20s. She is renting an apartment in the fashionable part...

Julie Brown is in her late 20s. She is renting an apartment in the fashionable part of town for $1,200 a month. After much thought, she’s seriously considering buying a condominium for $175,000. She intends to put 20 percent down and expects that closing costs will amount to another $5,000; a commercial bank has agreed to lend her money at the fixed rate of 6 percent on a 15-year mortgage. Julie would have to pay an annual condominium owner’s insurance...

The manager of Walmart’s in Arkansas is considering the possibility of providing flower delivery service. She...

The manager of Walmart’s in Arkansas is considering the possibility of providing flower delivery service. She hires you as consultant for this project. You suggested that Walmart should do some marketing research to understand the market needs. Walmart has conducted a survey. The major findings include:  The estimated number of customers is 400.  An average customer is willing to buy $30 worth of flowers per order and pay $5 for delivery.  An average customer tends to place...

Karl inc. has an opportunity to expand one of its production facilities at a cost of...

Karl inc. has an opportunity to expand one of its production facilities at a cost of $425000. If the expansion is undertaken Karl inc. expects their income will increase by $102000 the first year and then increase by $6000 each year after that. The annual expenses are expected to be $10000 the first year and increase by $1500 each year after that. The company will depreciate the equipment using a 5 year MACRS (20%, 32%, 19.2%, 11.52%, 11.52%, and 5.75%)...

A corporation operates snow sports facilities in Canada. The corporation has an opportunity to lease a...

A corporation operates snow sports facilities in Canada. The corporation has an opportunity to lease a location in the mountains for 10 years for $60,000 per year to open a new snow sports location. They will also have access to trails in the provincial park at an additional cost of $24,000 per year for trail maintenance. To secure the lease they paid a non-refundable deposit of $10,000 last year. The corporation will be required to purchase snowshoes, cross-country skis and...

Mike is considering renting a new apartment for a total of 4 years. Rent will be...

Mike is considering renting a new apartment for a total of 4 years. Rent will be paid monthly starting at $2,460 with the first payment in one months' time. The rental contract states that the rent will increase each month at the inflation rate of 2% p.a. compounded annually. If the appropriate discount rate is 6.25% p.a. compounded annually, what is the total cost to Mike of this rental agreement in current terms? $104,348.63 $106,750.57 $108,579.55 $103,248.19

Suppose you are considering renting an apartment in a building in which the tenants are required...

Suppose you are considering renting an apartment in a building in which the tenants are required to pay the cost of heating their apartments. The building has several apartments, each occupying an entire floor of the building. The building has a flat roof. You are attracted to the apartment on the top floor because of the view but your friend tells you that the heat bills will be higher for that apartment than for the ones on the lower floors....

Lindsey is a Procurement Manager for School Manufacturing (RM). She is considering a proposal from her...

Lindsey is a Procurement Manager for School Manufacturing (RM). She is considering a proposal from her supplier Livingston Electronics (LE). LE has proposed to supply an electrical component, SCM-305, that is used by RM for one of its industrial products. Up until now RM has manufactured the component in-house. After hearing about LE’s proposal, RM’s production manager indicated that it might be worth further consideration, so Lindsey decided to perform a cost analysis. The RM accounting department provided Lindsey with...