Part 3: Cost Behavior, CVP and Incremental Analysis

The following table summarizes the operating results for Bene Petit's first year of operations:

Bene Petit First year operating data:
	Single (1 serving)	Dual (2 servings)	Family (4 servings)	Total
Customer Meals Sold	3,000	5,000	12,000	20,000
Total Customer Servings	3,000	10,000	48,000	61,000
Customer Orders (Average = 4 meals per order)	750	1,250	3,000	5,000
Number of Donated Meals (1 per customer meal)	3,000	5,000	12,000	20,000
Number of Donated Deliveries (500 meals per delivery)	6	10	24	40

Additional information about selling prices, variable costs and fixed costs is summarized below:

The average sales price for customer meals is $5 per serving.

The average direct materials (ingredients) cost of customer meals is $1 per serving.

Direct labor costs average $0.75 per customer meal.

Variable manufacturing overhead costs are applied at a rate equal to 60% of direct labor.

Delivery expense for customer meals is $2 per customer order.

The incremental cost of producing the donated meals is $1.25 per meal.

Delivery expense for donated meals is $125 per delivery to community partners.

The following fixed costs are allocated to customer meals based on total sales revenue:

Fixed manufacturing overhead costs are $75,000 per year.

Fixed selling expenses are $29,000 per year.

Fixed administrative expenses are $40,000 per year.

in a "what if" analysis, how will operating results change if sales increase by 12% during the second year of operating.

What is the new net operating income?

What is the new degree of operating leverage?

If sales increased by 10% in the third year, what percentage growth in profit can the company expect?

What is the predicted operating profit in year 3?

Assume that the sales mix shifts to be 10% single serving, 20% dual serving and 70% family-size, with all other variables remaining the same?

What is the new average contribution margin per meal sold?

How many total meals must be sold to earn $106,000 in net operating income.

Assume that Taylor is considering raising the price per serving by 20%, but expects a corresponding drop in demand. How much would profit increase or decrease compared to the starting profit of $36,000?

If Bene Petit wants to increase net operating income to $121,400 by changing only the selling price per serving, what should the new price be