Question 3. (8 points) Eagle Outreach is opening a kitchen to provide hot meals

Question

Question 3. (8 points) Eagle Outreach is opening a kitchen to provide hot meals for the local homeless population. They are trying to decide how much of the cooking process to handle themselves, and how much to outsource to a national organization that specializes in these operations. Doing the cooking themselves has a lower variable cost, but requires investing irn equipment. They are considering the following three options: (1) Outsource all operations, for a variable cost of $0.90 per meal (2) Invest in basic equipment only, and outsource remaining tasks Fixed Cost: $1,500/year Variable Cost: $0.55 per meal (3) Invest in all necessary equipment, and do not outsource Fixed Cost: $3,000/year Variable Cost: $0.35 per meal You can assume that there are no differences in quality or reliability; the decision will be made entirely based on cost. NOTE: SHOW ALL YOUR WORK. a) (3 points) Comparing only options 1 and 2, how many meals per year must be served to justify Eagle investing in the basic equipment? b) (3 points) How many meals per year must be served to justify Eagle investing in all necessary equipment, given that both other options are available? c) (2 points) For what range of meals per year should Eagle invest in basic equipment only?

Explanation / Answer

Total cost = Fixed cost + Variable cost

Option 1 = 0.9*x

Option 2 = 1500 + 0.55*x

Option 3 = 3000 + 0.35*x

a) Let 'x' units cost of Option 1 & 2 is equal

0.9*x = 1500 + 0.55*x

x = 4286

So, for meals equal to greater than 4286, Option 2 is justified

b) Comparing Option 2 & 3

1500 + 0.55*x = 3000 + 0.35*x

x = 7500

So, for more than 7500 units, option 3 is justified

c) So, the range for basic equipment is 4286 to 7500 meals

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.