Read Case Study Mead Meals on Wheels Center—Part I (from Chapter 4) and Part II (from Chapter 5). Using the information in the case study problems, especially Problem 3 (from Part II), discuss the following:
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 two-to-three page Word document (not including title and reference pages) and your Excel worksheet. Your paper should be formatted according to APA style as outlined in the approved APA style guide,
The Mead Meals on Wheels Center (MMWC) provides two meals per day to the homebound elderly. The Town of Millbridge pays MMWC $32 per week for each person it services for the week. Each person receives 14 meals for the week. There is no shortage of demand for MMWC’s services among the elderly citizens of Millbridge and MMWC can find qualified recipients for as many meals as it can deliver.
To service the contract, MMWC has a central kitchen which can produce a maximum of 9,600 meals per day. It costs MMWC an average of $36,000 per week to operate the kitchen and MMWC’s other central facilities regardless of the number of meals that MMWC serves. This covers all of MMWC’s fixed costs (i.e., rent, equipment costs, and its personnel including administrative staff) as well as its fixed contract costs (e.g., utilities, snow removal).
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 MMWC’s only variable expense. You are MMWC’s only financial analyst and your boss has asked you to decide what to do.
During the year, you analyzed Mead Meals on Wheels Center’s (MMWC’s) kitchen operations and determined that MMWC could increase the capacity of the kitchen 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 kitchen’s capacity will require you to purchase $625,000 worth of equipment. The equipment has a useful life of five years.
Just as you started your analysis of the expansion, a food purveyor from outside the Millbridge city limits responded to MMWC’s request for bids and gave the Center a bid that was $.75 per person-week below the quote that was used in your original budget. That is a full $1.25 below the break-even level that you calculated.
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 MMWC’s cost of capital is 12 percent. She has instructed you to use the new food bid as your cost per person-week for food. She only wants to buy the new equipment if it generates enough additional contribution to pay for itself, taking into account the time value of money.
• If MMWC buys the equipment to expand their services, will that expansion have a positive financial impact? Support your recommendation and present your findings in a way that the director will understand. (Hint: You must separate the impact of the change in the cost of food, from the financial impact of the investment.)
13 Mead Meals on Wheels Center and its solution were written by Robert Purtell, Robert F. Wagner Graduate School of Public Service, New York University. Reprinted with permission.