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 Less expenses: Cost of food and supplies Salaries Space charge Depreciation of equipment General overhead charge Cafeteria profit $657,000 342,000 40,000 6,000 32,850 $1,095,000 1,077,850 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.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter7: Allocating Costs Of Support Departments And Joint Products

Section: Chapter Questions

Problem 17E

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Transcribed Image Text: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 Less expenses: Cost of food and supplies Salaries Space charge Depreciation of equipment General overhead charge Cafeteria profit $657,000 342,000 40,000 6,000 32,850 $1,095,000 1,077,850 $ 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.

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