Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Mayfield Software has a 2,000-square-foot cafeteria located on the lower level of Building 3, the company's largest building. The vice president of operations for
Mayfield Software has a 2,000-square-foot cafeteria located on the lower level of Building 3, the company's largest building. The vice president of operations for Mayfield insists that meal prices be reasonable so workers will stay on campus and avoid wasting time driving to restaurants with slow service. Employees at Mayfield are generally happy with the quality of food and the level of service in the cafeteria. Still, Mayfield is considering outsourcing to Regal Food Service. Mayfield is expanding and realizes that the future success of the company will require increased focus on its core competencies (and food service is not a core competency!). A cafeteria profit report for 2017 follows. In the report, the cafeteria is charged $20 per year per square foot for space and 3 percent of sales for general overhead (to cover the centrally administered costs of Mayfield Software, such as legal, brand advertising, salary of the CFO, etc.). All business units receive the same 3 percent charge. Cafeteria Profit Report for 2017 Sales $1,095,000 Less expenses: Cost of food and supplies $657,000 Salaries 342,000 Space charge 40,000 Depreciation of equipment 6,000 General overhead charge 32,850 1,077,850 Cafeteria profit $ 17,150 The terms of the agreement with Regal (which has not yet been signed) call for Regal to provide similar-quality meals and service at the same prices that were charged in 2017. Regal will use the current cafeteria space and existing equipment without cost. Regal will keep 96 percent of sales revenue and remit 4 percent of sales revenue back to Mayfield. Regal will pay for all food and supplies and hire and pay the salaries of all staff including the cafeteria manager, cooks, and servers. REQUIRED Evaluate the annual financial impact of the outsourcing decision assuming sales in the coming year, under Regal, will be the same as in 2017.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started