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Opportunity Cost

Trying to understand how to Opportunity cost work in my problem and how to set it up in computing for operating income. Please see attachment 2-31

2-31
Opportunity Cost
Healthy Hearth specializes in lunches for health conscious. The company produces a small selection of lunch offering each day. The menu selections may vary from day to day, but Healthy Hearth charges the same price per menu selection because it adjusts the portion sizes according to the cost producing the selection. Healthy Hearth currently sells
5,000 meals per month
$3 Variable cost per meal
$5,000 Fixed cost total per month

A government agency has recently proposed that Health Hearth provide
1,000 senior citizens meal
$3.50 cost for senior citizen meal
Volunteers will deliver the meals to the senior citizens at not charge.

a) Suppose Healthy Hearth has sufficient idle capacity to accommodate the government order for next month. What will be the impact on Healthy Heart's operation income if it accepts this order?

Operation Income?

Reg sales Gov sales
Meal per month 5000 1000
Fixed cost $5,000 $5,000
$3.50
Variable cost $3 $3
Contribution Margin $0.50

b) Suppose that Healthy Hearth would have to give up regular sales of 500 meals, at a price of $4.50 each, to accommodate the government order for next month. What will be the impact on Healthy Hearth's operating income if it accepts the government order?

Attachments

Solution Summary

Solution contains calculations of opportunity cost and operating income.

$2.19