Unit III Problem Solving

 

Problem 1

The Mead Meals on Wheels Center (MMWC) provides two meals per day to the homebound elderly. The Town of Millbridge pays MMWC $32 per week for each person it services for the week. Each person receives 14 meals for the week. There is no shortage of demand for MMWC’s services among the elderly citizens of Millbridge and MMWC can find qualified recipients for as many meals as it can deliver.

 To service the contract, MMWC has a central kitchen which can produce a maximum of 9,600 meals per day. It costs MMWC an average of $36,000 per week to operate the kitchen and MMWC’s other central facilities regardless of the number of meals that MMWC serves. This covers all of MMWC’s fixed costs (i.e., rent, equipment costs, and its personnel including administrative staff) as well as its fixed contract costs (e.g., utilities, snow removal).

 

            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 financial analyst and your boss has asked you to decide what to do.

 

 

Problem 2

Using your work to define MMWC’s spending limit, the executive director prepared a request for bids and sent it to all of the food purveyors in and near Millbridge. The best bid came in at $.50 below the number that you have calculated as MMWC’s break-even per person-week. Using this bid and the information given in the preceding problem, the director wants you to prepare a budget for MMWC in a format that will allow her to monitor MMWC’s performance on a quarterly basis for the coming year.

 

 For budgeting, the director has told you to assume that there are 13 weeks in each quarter. You know from your experience that the fixed expenses for the organization vary by season. Fixed costs average $38,000 per week in the winter (first quarter), $34,000 per week in the second quarter, $35,000 in the third quarter, and $37,000 in the fourth quarter.

Answers