operates a chain of 10 hospitals in the Los Angeles area. Its central food-catering facility, DelimanDeliman, prepares and delivers meals to the hospitals. It has the capacity to deliver up to 1 comma 025 comma 0001,025,000 meals a year. In 20142014, based on estimates from each hospital controller, DelimanDeliman budgeted for 925 comma 000925,000 meals a year. Budgeted fixed costs in 20142014 were $ 1 comma 517 comma 000$1,517,000. Each hospital was charged $ 6.54$6.54 per meallong dash$ 4.90$4.90 variable costs plus $ 1.64$1.64 allocated budgeted fixed cost. Recently, the hospitals have been complaining about the quality of DelimanDeliman's meals and their rising costs. In mid-20142014, Deli One'sDeli One's president announces that all Deli OneDeli One hospitals and support facilities will be run as profit centers. Hospitals will be free to purchase quality-certified services from outside the system. Ron Smith, DelimanDeliman's controller, is preparing the 20152015 budget. He hears that three hospitals have decided to use outside suppliers for their meals, which will reduce the 20152015 estimated demand to 820 comma 000820,000 meals. No change in variable cost per meal or total fixed costs is expected in 20152015.

	How did Smith calculate the budgeted fixed cost per meal of $ 1.64 in 2014
2.	Using the same approach to calculating budgeted fixed cost per meal and pricing as in 2014, how much would hospitals be charged for each DelimanDeliman meal in 2015? What would the reaction of the hospital controllers be to the price?
3.	Suggest an alternative cost-based price per meal that Smith might propose and that might be more acceptable to the hospitals. What can DelimanDeliman and Smith do to make this price profitable in the long run?