Question

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 $1,100, 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.

(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?

Daily opportunity cost?

Net advantage (disadvantage)?

Answer 1

The owners has added $ 2.2 per meal to his variable cost of $ 4.00 per meal to arrive at $6.2 per meal as his total cost per meal. The $ 2.20 is his Total Fixed cost $1,100 divided over Actual capacity of 500 meals per day)

This is then compared with the realisation of $ 5.30 per meal, ( This is arrived at by dividing the Total Offer $159 by total of 30 meals)

When he Compares his Selling price of $ 5.30 to the above total cost of $ 6.20, he arrived at his loss of $0.90 per meal.

Current Average cost per meal is Variable Cost ( $ 4)/meal plus $ 2.00 per meal ( his Fixed cost based on capacity of 550 meals per day ). This is $ 6.00 per meal.

DAILY OPPORTUNITY COST :  

THis is the loss of Contribution to his fixed cost of $ 1,100 per day by using up his capacity towards other less profitable orders.