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.

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? Comment on the owner's reasoning.

c. A local businessman on a break overhears the conversation with the leader and offers the owner 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. Should the restaurant owner accept this offer? Why or why not?

Answer 1

Answer:

a. Current average cos per meal = $5.6

b. how the owner arrived at the $0.60 figure is explained in the explanation part, but on the comment, the owner is focused on the unit price of the meals, which helps him determine quickly if he makes a profit or loss

c. The restaurant owner should not accept the offer

Explanation:

a. To calculate the average cost per meal, we have to determine the total cost used in producing the meals per day, and divide it by the total number of meals per day;

Total fixed cost per day = $1,200

variable cost per meal = $4

meals per day = 750

therefore total variable cost per day = 4 × 750 = $3,000

∴ Total cost per day = total fixed cost + total variable cost

= 1,200 + 3,000 = $4,200.

Next, we will find the total cost of making a meal per day, using the total fixed cost amount. It is calculate thus;

Cost of 1 meal per day = Total cost per day ÷ number of meals made per day

= 4,200 ÷ 750 = $5.6

b. if the scout leader offers a price of $150 for a total of 30 girl, to determine whether a profit or loss is made, let us first calculate how much it takes to make the meals for the 30 girls.

remember that from a above, cost of meal for 1 person = $5.6

therefore cost of meals for 30 girls = 5.6 × 30 = $168

so if the owner agrees to this offer, he will make a loss, which is calculate as; cost price - selling price = 168 - 150 = $18

so the offer produces a total loss of $18 for the 30 girls (30 meals)

but the owner stated the loss as loss per meal, so since 30 meals produced a loss of $18, therefore, 30 meals = 18 ÷ 30 = $0.6

c. remember that the cost of making a meal = $5.6, if the business owner accepts an offer of $4.5 per meal, he will be making a loss of; 5.6 - 4.5 = $1.1 on each meal. so he should reject the offer