Operational Analysis Read Case Study Mead Meals On Wheels ✓ Solved

Operational Analysisread Case Study Mead Meals On Wheels Belowmmwc

Operational Analysis Read Case Study “Mead Meals on Wheels†below: MMWC buys the equipment to expand their services. Present a recommendation supporting the type of financial impact the expansion of services will have on MMWC. Clearly label the calculation of the impact of food costs and the financial impact costs. Use formulas to calculate the costs and format the cells to insert a comma if there is more than three numbers and round to the nearest whole number. Submit to your instructor your two-to-three page Word document (not including title and reference pages) and your Excel worksheet.

Paper should be formatted according to APA style. Cite at least two scholarly sources in addition to the textbook. Case study Mead Meals on Wheels The Mead Meals on Wheels Center (MMWC) provides meals every day to the homebound elderly. The city of Wabash pays MMWC $32 per week for each person it serves. There is no shortage of demand for MMWC’s services among the elderly citizens of Wabash, and MMWC can find qualified recipients for as many meals as it can deliver.

Each person helped by MMWC receives two hot meals per day, seven days per week, for a total of 14 meals every week. To service the contract, MMWC has a central kitchen that has the capacity to produce a maximum of 9,600 meals per day. It costs MMWC an average of $36,000 per week to operate the kitchen and other central facilities regardless of the number of meals that MMWC serves. This covers all of WMWC’s fixed costs (e.g., rent, equipment costs, and its personnel including administrative staff) as well as its fixed seasonal service contract costs (utilities, snow removal, etc.)

Sample Paper For Above instruction

The operational efficiency and financial sustainability of Mead Meals on Wheels Center (MMWC) hinge critically on understanding its cost structure, capacity constraints, and revenue streams. Accurate financial analysis assists the organization in determining the maximum expenditure per person while remaining profitable and guides strategic decisions, including expansion and resource allocation. This paper provides an in-depth analysis of MMWC’s current financial position, evaluates potential expansion impacts, and offers recommendations for sustainable growth, supported by scholarly sources and detailed calculations.

Current Financial Situation and Break-Even Analysis

To evaluate MMWC’s financial viability, it is essential to determine its break-even point—the maximum amount MMWC can spend per person per week without incurring losses. The organization’s fixed weekly costs are $36,000, covering fixed costs such as rent, equipment, and personnel. The revenue is generated at $32 per week per person served, with each person receiving 14 meals weekly, totaling 9,600 meals per day capacity.

Given the current capacity, the maximum possible weekly meal production is 9,600 × 7 = 67,200 meals. Since each person receives 14 meals weekly, the maximum number of persons served per week is 67,200 / 14 ≈ 4,800 persons. To find the break-even revenue per person, use the formula:

Break-Even Revenue per Person = (Fixed Weekly Costs) / (Number of Persons Served)

Therefore,

Break-Even Revenue per Person = $36,000 / 4,800 ≈ $7.50

However, since the city pays $32 per week but given the capacity constraints, MMWC’s revenue per person surpasses the break-even point, indicating the organization is currently profitable at the existing rate. Nevertheless, further analysis is necessary when considering expansion, variable food costs, and additional expenses.

Impact of Food Costs and Cost Calculations

Food costs significantly influence MMWC’s profit margins. If the bid for food drops by $0.50 below the break-even level, that indicates food costs are approximately $7.00 per person-week. The organization must ensure that food expenses, including ingredients, labor, and waste, remain within this limit to maintain profitability.

Using an example, if the bid reduces food costs to $6.50 per person-week, then total weekly food expenses for 4,800 persons are:

Total Food Cost = $6.50 × 4,800 ≈ $31,200

This cost is manageable within the current revenue structure, but any excess or increases in food costs would diminish profit margins.

Budgeting for the Next Four Quarters and Variance Analyses

The organization’s fixed costs vary seasonally, with weekly expenses of $38,000 in Q1, $34,000 in Q2, $35,000 in Q3, and $37,000 in Q4. A severe winter has caused a reduction in clients served to 4,600 persons weekly, with additional costs of $2,000 due to exceeding snowplowing and heating budgets.

Quarterly budgets must incorporate these variations. The total fixed costs for Q1 would be:

Fixed Costs Q1 = $38,000 + $2,000 = $40,000

Similarly, for other quarters, adjust fixed costs accordingly. Average weekly variable costs, including food, should be based on actual costs, adjusting for bid reductions or increases. The annual budget aggregates these quarterly figures to provide a comprehensive outlook.

Variance Analysis for First Quarter

Variance analysis compares actual expenses and revenues with budgeted figures, identifying favorable or unfavorable variances. For example, if actual fixed costs exceed budgeted figures by $2,000 weekly, that is an unfavorable variance impacting overall profitability.

Similarly, a lower number of clients served (4,600 instead of 4,800) creates a volume variance impacting revenue. Price variance occurs if food costs per unit differ from budgeted costs, influenced by bids and actual purchases.

Assessing the net impact involves analyzing whether these variances resulted in overall gains or losses. In Q1, the severe winter's reduced volume and increased fixed costs likely resulted in a net unfavorable variance, but lower food costs may have partially offset this impact.

Decision on Equipment Purchase and Expansion

The potential to expand capacity by investing $700,000 in new equipment—assuming a 5-year lifespan, 9% cost of capital, and straight-line depreciation—must be evaluated against expected benefits. The annual depreciation expense is:

Depreciation = ($700,000 − Residual Value) / 5 ≈ $140,000

Additional funding costs, including interest at 8%, would be:

Interest = $700,000 × 8% = $56,000 annually

Given the projected increase in meal capacity to 10,400 per day, MMWC can serve more clients, increasing revenue. However, payback periods, cash flow impacts, and strategic priorities must guide purchasing decisions.

Recommendations and Conclusions

Based on the detailed financial analysis, MMWC is currently operating profitably within capacity constraints. The reduction in food costs due to bidding presents an opportunity to further improve margins. Expansion investments should be carefully considered, ensuring that increased capacity aligns with demand projections and financial sustainability.

The primary recommendation is to proceed with equipment purchase, given the potential to serve more clients and increase revenue. Maintaining an emphasis on controlling food and operational costs, along with strategic financing arrangements such as quarterly payments, will support sustainable growth.

In conclusion, MMWC can confidently expand its services, provided it manages costs effectively and aligns capacity expansion with demographic demand. Continual variance analyses and financial monitoring will assure ongoing sustainability and mission fulfillment.

References

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• Horngren, C. T., Datar, S., Rajan, M. V. (2015). Management and Cost Accounting. Pearson.
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• Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2018). Managerial Accounting. McGraw-Hill Education.
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• Euromonitor International. (2022). Trends in nonprofit organizations and service expansion.