Merit Bay Communications operates a customer call center thathandles billing inquiries for several large insurance firms. Sincethe center is located on the outskirts of town, where there are norestaurants within a 20-minute drive, the company has alwaysoperated an on-site cafeteria for employees. The cafeteria uses$180,000 in food products each year and serves 5,000 meals permonth, at a price of $5 each. It employs five full-time workerswhose salaries and benefits total $90,000 per year. Depreciation onthe cafeteria equipment is $35,000 per year. Other fixed overheadthat is directly related to operating the cafeteria totals $12,000per year. Best Ever Foods has offered to take over Merit Bayâscafeteria operations. As part of the transition, current cafeteriaemployees would become Best Ever employees, and Best Ever wouldassume all out-of-pocket costs to operate the cafeteria. Best Everwould continue to offer meals at $5 each and would pay Merit Bay$0.5 per meal for the use of its cafeteria facilities. Calculatethe net revenue from cafeteria operations and revenue fromoutsourcing the cafeteria to Best Ever Foods. Assume that Merit Bayaccepted Best Everâs offer two years ago and that all costs haveremained constant. Since then, a new shopping mall has opened closeto the companyâs location, bringing in several fast-food andquick-service restaurants. Employee demand for cafeteria servicehas dropped to 1,000 meals per month, and Best Ever has laid offtwo of the five cafeteria workers. Calculate net revenue fromoperating the cafeteria and the revenue from outsourcing thecafeteria. Does it make financial sense for Merit Bay to renew BestEverâs contract for another year, or should it resume operation ofthe cafeteria operation?
Merit Bay Communications operates a customer call center thathandles billing inquiries for several large insurance firms. Sincethe center is located on the outskirts of town, where there are norestaurants within a 20-minute drive, the company has alwaysoperated an on-site cafeteria for employees. The cafeteria uses$180,000 in food products each year and serves 5,000 meals permonth, at a price of $5 each. It employs five full-time workerswhose salaries and benefits total $90,000 per year. Depreciation onthe cafeteria equipment is $35,000 per year. Other fixed overheadthat is directly related to operating the cafeteria totals $12,000per year. Best Ever Foods has offered to take over Merit Bayâscafeteria operations. As part of the transition, current cafeteriaemployees would become Best Ever employees, and Best Ever wouldassume all out-of-pocket costs to operate the cafeteria. Best Everwould continue to offer meals at $5 each and would pay Merit Bay$0.5 per meal for the use of its cafeteria facilities. Calculatethe net revenue from cafeteria operations and revenue fromoutsourcing the cafeteria to Best Ever Foods. Assume that Merit Bayaccepted Best Everâs offer two years ago and that all costs haveremained constant. Since then, a new shopping mall has opened closeto the companyâs location, bringing in several fast-food andquick-service restaurants. Employee demand for cafeteria servicehas dropped to 1,000 meals per month, and Best Ever has laid offtwo of the five cafeteria workers. Calculate net revenue fromoperating the cafeteria and the revenue from outsourcing thecafeteria. Does it make financial sense for Merit Bay to renew BestEverâs contract for another year, or should it resume operation ofthe cafeteria operation?
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