PLEASE ANSWER 4, 5, AND 6 Read Case Study “Mead Meals on Wheels” Case Study Mead
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PLEASE ANSWER 4, 5, AND 6
Read Case Study “Mead Meals on Wheels”
Case Study Mead Meals on Wheels
The Mead Meals on Wheels Center (MMWC) provides meals every day to the homebound elderly. The city of Wabash pays MMWC $32 per week for each person it serves. There is no shortage of demand for MMWC’s services among the elderly citizens of Wabash, and MMWC can find qualified recipients for as many meals as it can deliver. Each person helped by MMWC receives two hot meals per day, seven days per week, for a total of 14 meals every week.
To service the contract, MMWC has a central kitchen that has the capacity to produce a maximum of 9,600 meals per day. It costs MMWC an average of $36,000 per week to operate the kitchen and other central facilities regardless of the number of meals that MMWC serves. This covers all of MMWC’s fixed costs (e.g., rent, equipment costs, and its personnel including administrative staff) as well as its fixed seasonal service contract costs (utilities, snow removal, etc.).
The first problem that MMWC faces is figuring out how much it can afford to spend per person, per week for food to supply the program. Food is MMWC’s only variable expense. You are MMWC’s only program analyst.
Question 4: What do you tell her? Support your recommendation and present your findings in a way that the executive director will understand.
a.Assuming that you pay your suppliers quarterly and that you are paid by Wabash quarterly, what would you recommend doing?
b.Would your answer be different if you were paid by Wabash and pay your suppliers weekly? Annually?
You finish your capital budget analysis just in time to prepare the operating budget for the coming year. The executive director wants you to use last year’s budget as a starting point but to update it to reflect the higher fixed costs that occurred during this year’s winter operations (i.e., the first quarter). In addition, she has decided to accept your recommendation about the equipment. If you decide to go ahead with the purchase, a local bank will lend MMWC the full purchase price of the equipment and only charge MMWC for interest during the first year of the loan. Interest on the loan would be set at 8 percent per year. MMWC’s normal policy is to assume a 10 percent residual value on all kitchen equipment and to depreciate it over five years on a straight-line basis.
Question 5: Incorporating all of the things that have happened during the year, as well as your capital budgeting recommendation, prepare a new quarterly budget and an annual summary for MMWC for the coming year.
Question 6: Given the profits that MMWC expects to produce in the next fiscal year, should it expand and feed more people? Why has it chosen not to feed more than 5,200 people? What would be required to expand MMWC beyond its current level of operations?
Using the information in the case study, discuss the following:
MMWC buys the equipment to expand their services. Present a recommendation supporting the type of financial impact the expansion of services will have on MMWC.
Clearly label the calculation of the impact of food costs and the financial impact costs. Use formulas to calculate the costs and format the cells to insert a comma if there is more than three numbers and round to the nearest whole number.
Explanation / Answer
1. To make the program runnable, MMWC needs to atleast reach break even point i.e the situation of no profit no loss. For calculating the break even point total revenue per week of MMWC should be equal to the total cost of MMWC.
Calculation of Break Even point of Food Cost
Particulars
Number
Maximum Production Capacity
9600 meals per day
Meal per day of each person
2 meals per day
Total number of persons that can be served per day
(9600 meals / 2 meals)
4800 persons per day
Total number of persons actually served (See note 1)
4,800 persons per day
Particulars
Amount (in $)
Sales per week (4,800persons x $32 per week)
153,600
Less: Service Contract Cost (Fixed)
36,000
Contribution remaining for allocation
117,600
Total Persons served in a week
4,800
Break even cost of Food (per person per week)
($117,600 / 4,800)
24.5
Note 1: In the question it is specified there is no shortage of demand for food among elderly and therefore we have taken maximum number of persons that can be served as per production capacity.
Therefore, MMWC can afford to spend maximum of $24.5 per person per week to remain in Break-even situation.
1 a. In the second part of Q4 more information needed as to whether we are required to calculate the food cost per person per week or we are required to provide something else.
1 b. In the third part of Q4 more information needed as to whether we are required to calculate the food cost per person per week or we are required to provide something else.
Particulars
Number
Maximum Production Capacity
9600 meals per day
Meal per day of each person
2 meals per day
Total number of persons that can be served per day
(9600 meals / 2 meals)
4800 persons per day
Total number of persons actually served (See note 1)
4,800 persons per day
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