40.       CVP—partial data; special order. Partial income statements of University Dining Hall Food Service for the first two quarters of Year 200X follow.

 

UNIVERSITY DINING HALL FOOD SERVICE

Partial Income Statements for  First and Second Quarters of  Year   200X

 

Â	First Quarter	Second Quarter
Sales at $3.60 per Meal (unit) .........................................................	$ 36,000	$63,000
Total  Costs .............................................................................................	49,000	67,000
(Loss) ......................................................................................................	$(13,000)	$(4,000)

 

 

Each dollar of variable cost per meal comprises 50 percent direct labor, 25 percent direct materials, and 25 percent variable overhead costs. University Dining Hall expects sales units, price per unit, variable cost per unit, and total fixed costs to remain at the same level during the third quarter as during the second quarter. University Dining Hall sold 17,500 meals in the second  quarter.

a.       What is the quarterly break-even point in meals (units)?

b.       The dining hall has just received a special order from the university officials that requests 7,500 meals for visitors to campus at a price of $3.20 per meal (unit). If the dining hall accepts the order, it will not affect the regular market for 17,500 meals in the third quarter. The dining hall can produce the additional meals with existing capacity, but direct labor costs per meal will increase by 10 percent for all meals produced because of the need to hire and use new labor. Fixed costs will increase $3,000 per quarter if the dining hall accepts the new order. Should it accept the university officials’ order?

c.       Assume that the dining hall accepts the order in part b. What level of sales volume to student customers provides third-quarter profit of $6,800? (The third quarter would be just like the second quarter if the dining hall does not accept the university officials’ order.)