Merit Bay Communications operates a customer call center that handles billing inquiries for several large insurance firms. Since the center is located on the outskirts of town, where there are no restaurants within a 20-minute drive, the company has always operated an on-site cafeteria for employees. The cafeteria uses $202,400 in food products each year and serves 5,020 meals per month, at a price of $5 each. It employs five full-time workers whose salaries and benefits total $90,400 per year. Depreciation on the cafeteria equipment is $35,000 per year. Other fixed overhead that is directly related to operating the cafeteria totals $12,700 per year.

Best Ever Foods has offered to take over Merit Bay's cafeteria operations. As part of the transition, current cafeteria employees would become Best Ever employees, and Best Ever would assume all out-of-pocket costs to operate the cafeteria. Best Ever would continue to offer meals at $5 each and would pay Merit Bay $0.5 per meal for the use of its cafeteria facilities.

(a)Calculate the net revenue from cafeteria operations and revenue from outsourcing the cafeteria to Best Ever Foods.

Net revenue from operating the cafeteria$

Revenue from outsourcing the cafeteria$

(b)Should Merit Bay continue to operate the employee cafeteria, or should the company accept Best Ever's offer?

Merit Bay shouldreject/acceptBest Ever's offer.