Mead Meals, Research Paper Example

Question 1: Calculating the Breakeven Food Cost

If MMWC is to breakeven, i.e. provide meals to the point where the revenue earned is equivalent to the total costs associated with running the project, then it can only afford to spend a variable food costs of $24.50 per person per week. This is because with a maximum capacity in providing 9600 meals per week and each client receiving two meals per day, then the maximum capacity in clients is 4,800 clients per week. In order to breakeven, the costs have to equal to the revenue. With Fixed costs as $36,000, the variable costs per person per week spent on food is $24.50.

This means that the variable costs at any given time should not surpass $24.50. This is because if the value goes beyond $24.50, then MMWC will stand to make a loss. This leaves the project with a total spending cap of $153,600, equivalent to the total revenue expected to be realized at the current income rate of $32 per person per week.

Question 2: Creating the Quarterly Budget

MMWC is expected to incur the same amount in variable food costs throughout the year owing to the fixed nature of the bid that has been accepted, i.e. $24 per person per week. This will give a variable fixed food cost of $115,200 per week. The company is expected to receive the lowest revenue within the first quarter and the most revenue in the second quarter. This is owing to the high fixed costs that are expected in the first quarter and the least amount of fixed costs in the second quarter. The total expenses in each quarter vary according to the amount of fixed costs associated with each quarter. This means that MMWC is expected to make the most profit in the second quarter followed by the third quarter. The first month will experience the lowest yield in profit.

Description of Calculation

Question 1: Calculating the Breakeven Food Cost

Step 1: obtain the kitchen’s maximum capacity in clients per week by dividing the total number of meals that can be produced in a week to the number of meals that a client receives in a day.

Step 2: obtain the total revenue by multiplying the maximum capacity in clients by the revenue received per client per week.

Step 3: obtain the total variable food cost by subtracting the weekly fixed cost from the total weekly revenue obtained in Step 2.

Step 4: obtain the average variable food cost by dividing the total variable food cost by the number maximum capacity in clients per week.

Question 2: Creating the Quarterly Budget

Step 1: obtain the variable food cost by multiplying the bid price by the maximum capacity in clients

Step 2: obtain the total fixed cost for each quarter by adding the given quarterly fixed costs to the variable food cost that is the same for all quarters.

Step 3: Obtain the surplus/deficit for each quarter by subtracting the total expenses for each quarter from the corresponding value in total revenue that is the same for each quarter.