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Exam_2_Fall2006 - ACCOUNTANCY 321 Fall 2006 EXAM II I...

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ACCOUNTANCY 321 Fall, 2006 EXAM II I. Costigan operates a chain of ten hospitals in the San Diego area. Its central food-catering facility, Omar-Chef, prepares and delivers meals to the hospitals. It has the capacity to deliver up to 3,650,000 meals per year. In 2005, based on estimates from each hospital controller, Omar-Chef budgeted for 2,555,000 meals for the year. Budgeted fixed costs for 2005 were $3,832,500. Each hospital was charged $5.30 per meal --- $3.80 variable cost plus $1.50 allocated budgeted fixed cost. Recently, the hospitals have been complaining about the quality of Omar-Chef’s meals and their rising costs. In mid-2005, Costigan’s president announces that all Costigan hospitals and support facilities will be run as profit centers. Hospitals will be free to purchase quality- certified services from outside the system. Duyen Aller, Omar-Chef’s controller, is preparing the 2006 budget. She hears that three hospitals have decided to use outside suppliers for their meals; this will reduce the 2006 estimated demand to 2,190,000 meals. No change in variable cost per meal or total fixed costs is expected for 2006. A. How did Aller calculate the budgeted fixed cost per meal for 2005. SHOW DETAILS OF YOUR CALCULATION. (2 points) B. Using the same approach as Aller used in 2005, how much would hospitals be charged for each Omar-Chef meal in 2006?
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