Darien Industries operates a cafeteria for its employees. The operation of the c

Question

Darien Industries operates a cafeteria for its employees. The operation of the cafeteria requires fixed costs of $4,700 per month and variable costs of 40 percent of sales. Cafeteria sales are currently averaging $12,000 per month. Darien has an opportunity to replace the cafeteria with vending machines. Gross customer spending at the vending machines is estimated to be 40 percent greater than current sales because the machines are available at all hours. By replacing the cafeteria with vending machines, Darien would receive 16 percent of the gross customer spending and avoid all cafeteria costs. How much does monthly operating income change if Darien Industries replaces the cafeteria with vending machines?

Explanation / Answer

Current Status: Sale 12000 Less VC (40%) (4800) --------------------------- Total Cont 7200 Less FC 4700 ------------------ Net Income 2500 ---------------------- With Vendng MAchine: Sale 1.4*12000 = 168,000 Net Income = 16% of Sales = 16%*168000 = 2688 So Monhly Net Income will change by 2688-2500 = 188

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