You are the manager of the Forever Feed The World (FFTW) relief organization, wh

Question

You are the manager of the Forever Feed The World (FFTW) relief organization, which works with a coalition of countries to help provide corn, wheat, and other food staples to countries where food is in short supply. FFTW’s board has asked you to prepare a monthly operating budget based on feeding 20,000 people per day as well as a flexible budget based on a 25 percent increase in the number of people you will have to feed each day.

Your operation has three full-time employees: a manager who earns $50,000 per year, the head of security earning $35,000 per year, and a field manager who earns $27,000 per year. FFTW spends an additional 25 percent of each employee’s annual salary to pay for the cost of health insurance and retirement benefits. You also employ 33 local people as cooks. They earn $40 per day. As a group, they can cook enough food to feed up to 27,000 people per day. Cooks do not receive benefits.

You use trucks to deliver food and cooking fuel to the remote feeding sites. You estimate it takes one truck to service every 500 people you feed each month. It costs $2,000 to pay for the fuel, drivers, and maintenance to operate one truck for one month. Depreciation for nontrucking equipment adds $15,000 to expenses.

Direct costs for food are $7.00 per person per day. The coalition of countries has agreed to pay FFTW $5.25 per day for each person you feed. For budgeting purposes, assume there are 30 days in a month. Finally, the World Nutrition Society has pledged $50,000 per month to support the FFTW effort for the coming year.

Prepare a monthly operating budget based on feeding 20,000 people per day as well as a flexible budget based on a 25 percent increase in the number of people you will have to feed each day.

Explanation / Answer

Forever Feed The World Monthly Operating Budget 20000 people 25000 people Revenues: From coalition of countries 3150000 3937500 (20000 x $5.25 x 30) (25000 x $5.25 x 30) From World Nutrition Society 50000 50000 Total revenues $ 3200000 3987500 Variable costs: Fuel, drivers, and maintenance of trucks 80000 100000 (20000/500 x $2000) (25000/500 x $2000) Direct food costs 4200000 5250000 (20000 x $7 x 30) (25000 x $7 x 30) Total variable costs $ 4280000 5350000 Fixed costs: Employee salaries [($50000 + $35000 + $27000)/12] 9333 9333 Health insurance and retirement benefits (9333.33 x 25%) 2333 2333 Cook salaries (33 x $40 x 30) 39600 39600 Depreciation for nontrucking equipment 15000 15000 Total fixed costs $ 66267 66267 Total costs $ 4346267 5416267 Net operating income $ -1146267 -1428767

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