Wabashs Meals on Wheels Center

About 20 years ago, Wabashs local Meals on Wheels nonprofit was going to shut down because of some mismanagement from the organizations CEO. The county council decided the Wabash LHD would instead absorb the staff and operations of Metro Meals on Wheel Center (MMWC), which provides meals every day to the homebound elderly. Its uncommon, to be sure, but not unheard of. At the beginning, the council provided funding to MMWC but in the years since, theyve forced the MMWC to be essentially become self-reliant. There is no shortage of demand for MMWCs 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. For each person MMWC serves per week (that is, for each elderly resident that is served 14 meals per week), the city of Wabash pays MMWC $32.

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 MMWCs 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.).

The first problem that MMWC faces is figuring out how much it can afford to spend per person, per week for food to supply the program. Food is MMWCs only variable expense. You are MMWCs only program analyst.

Questions 4-5 are graded (30 pts, 5% of final grade)

During the year, you conducted an analysis of MMWCs kitchen operations and

determined that you could increase the capacity of the kitchen from 9,600 to 10,400 meals per day. You see a chance to increase the number of meals that MMWC can deliver to the elderly, as well as a way to increase your weekly revenue. However, expanding the kitchens capacity will require you to purchase $700,000 worth of equipment. The equipment has a useful life of five years. The executive director is interested in any idea that will expand service delivery. But, she is concerned about being able to pay for the equipment. She tells you that MMWCs cost of capital is 9 percent and asks if MMWC should purchase the equipment.

Question 4: What do you tell her? Support your recommendation and present your findings in a way that the executive director will understand. Fill out the table and write a justification no longer than 200 words in length. In addition, provide brief answers to Q4a-Q4c below. (10 pts) Assuming that you pay your suppliers quarterly and that you are paid by Wabash quarterly, what would you recommend doing? Would your answer be different if you were paid by Wabash and pay your suppliers weekly? Annually?

Question 5: Incorporating all of the things that have happened during the year, as well as your capital budgeting recommendation, prepare a new quarterly budget and an annual summary for MMWC for the coming year. Fill out Q5 Table 1 and Q5 Table 2 (20 pts)

Question 5Revised Budget Q5 Table 1
Depreciation Expenses	Quarter 1	Quarter 2	Quarter 3	Quarter 4
Cost of Equipment
Residual Value
Depreciable Base
Useful Life
Annual Straight-Line Depreciation
Quarterly Straight-Line Depreciation
Interest Expense
Loan Amount
Annual Interest Expense
Quarterly Interest Expense

Q5 Table 2	Quarter1	Quarter 2	Quarter 3	Quarter 4	Annual Total
Revenue
Expenses
Variable Food Costs	$384	$384	$384	$384	$1536
Fixed Costs	$432,000	$432,000	$432,000	$432,000	1,728,000
Interest Expense
Additional Depreciation
Total Expenses
Surplus/(Deficit)