Financial Management



Financial Management

Part 1: Mead Meals on Wheels Center

Problem 1:

In the first problem, we have to figure out the mount MMWC can afford to spend on per person. In short, we have to determine at what variable cost MMWC can afford to pay covering the fixed cost.

The information in the case study states that Unit Revenue (P) is $32 per week. In order to get (Q) i.e. the break even quantity a little working is needed. The case study states that Mead Meals on Wheels Center can prepare 9,600 meals per day but at the same time it demand for two meals per day per person for delivery. This shows that Mead Meals on Wheels Center can supply 4,800 people on any specified day. This should be noted that each person have 14 meals per week, hence, Mead Meals on Wheels Center could supply only 4,800 people per week. Mead Meals on Wheels Center fixed cost per week is $36,000.

The formula for Break-Even is as followed (Schweitzer, Trossmann, Lawson, 2011):

Break-Even Quantity = Fixed Cost / (Revenue per unit- Variable cost per unit)

Break-Even Quantity = (Q) = 4,800

Fixed Cost = F.C. = $ 36,000

Revenue per unit = P = $ 32

Variable cost per unit = V.C. =?

If we multiplying both side of the equation with P- VC we will get:

Q x (P - VC) = FC

If left side of the equation is expanded we will get:

Q x P - Q x VC = FC

Now subtracting from both side Q x R we will get:

-Q x VC = FC - Q x P

-VC = (FC - Q x P) / Q

Now both sides multiply by - 1 we will get:

VC = (Q x P x FC)/ Q

Now substituting the values:

VC = (4800 x 32 - 36000)

(4800)

= $ 24.50

The maximum amount that Mead Meals on Wheels Center could spend for food per person week is $ 24.5.

Problem 2:

In problem 2, director has asked to consider the information from problem 1 with certain additional information on the Mead Meals on Wheels Center seasonality fixed costs and adding this fact that the lowest bid for food supply was $ 0.5 which is below the level of Break Even Analysis calculated in above problem 1. The below budget has been extracted from the problem figures:

Quarterly Revenue is equal to the quantity of people served per week is 4,800 into the week in quarter i.e. 13 into the payment by Millbridge to Mead Meals on Wheels Center for each person week i.e. $32. Therefore, the revenue will be $ 1,996,800.

Quarterly Fixed Expenses differs with the quarters. In the winter i.e. 1st quarter the Fixed Expenses were $38,000 per while 2nd quarter, Fixed Expenses were $34,000 per week and 3rd quarter Expenses were $35,000 and in fourth quarter Fixed Expenses was $37,000. For quarterly fixed costs calculations comprises of weekly fixed costs per quarter multiply by the number of weeks in a quarter (Jain, ...