Practice Exercise 1 (Part Level Submission) ToyCo’s Seafood Restaurant has been

Question

Practice Exercise 1 (Part Level Submission)

ToyCo’s Seafood Restaurant has been approached by New England Investments, which wants to hold an employee recognition dinner next month. Lillian Sumner, a manager of the restaurant, agreed to a charge of $73 per person, for food, wine, and dessert, for 177 people. She estimates that the cost of unprepared food will be $38 per person and beverages will be $14 per person.

To be able to accommodate the group, Lillian will have to close the restaurant for dinner that night. Typically, she would have served 188 people with an average bill of $61 per person. On a typical night, the cost of unprepared food is $22 per person and beverages are $20 per person. No additional staff will need to be hired to accommodate the group from New England Investments.

What was the opportunity cost of accepting the New England Investments group?

The opportunity cost will be $?

Explanation / Answer

Note : Opportunity cost refer to the value of losing the benefit of one option that a firm gaveup in order to select some other alternative option. Thus oppertunity lost is Oppertunity cost.

In the present case , opportunity cost for ToyCo’s Seafood Restaurant by accepting the New England Investments group will the the profit from regular operation for one night that it loses .

Computation of profit per night from regular operation

Answer :

Opportunity cost for ToyCo’s Seafood Restaurant by accepting the New England Investments = Profit per night from regular operation = $3,572

Particular Amount ($) Aaverage Bill per person 61 Less : Cost of food & beverages ($22 + $20) 42 Profit per person 19 * Number of people served per night 188 Profit per night from regular operation $3,572

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