Question

Cullumber Communications operates a customer call center that handles billing inquiries for several large insurance firms. Since the center is located on the outskirts of town, where there are no restaurants within a 20-minute drive, the company has always operated an on-site cafeteria for employees. The cafeteria uses $234,000 in food products each year and serves 6,000 meals per month, at a price of $5 each. It employs five workers whose salaries and benefits total $100,000 per year. Depreciation on the cafeteria equipment is $19,000 per year. Other fixed overhead that is directly related to operating the cafeteria totals $12,000 per year.

Blossom Foods has offered to take over Cullumber’s cafeteria operations. As part of the transition, current cafeteria employees would become Blossom employees, and Blossom would assume all out-of-pocket costs to operate the cafeteria. Blossom would continue to offer meals at $5 each and would pay Cullumber $1 per meal for the use of its cafeteria facilities.

(a)

Calculate the net revenue from cafeteria operations and revenue from outsourcing the cafeteria to Blossom Foods.

Net revenue from operating the cafeteria	$enter a dollar amount
Revenue from outsourcing the cafeteria	$enter a dollar amount

Answer 1

Answer
Net revenue from cafeteria operations:
sale revenue (6000*5*12)	$      360,000
less; operating cost:
food product	$      234,000
salaries & benefits	$      100,000
Fixed overhead cost	$        12,000
Total operating cost	$      346,000
Net operating revenue	$        14,000
revenue from outsourcing the cafeteria
(6000*1*12) = 72000