explain using linear profit modeling calculations B u s i n e s s F i n a n c e
2-page document, explain the impact of this decision. Be sure to address the following:
- How much does monthly operating income change if Baker Consolidated replaces the cafeteria with vending machines? Explain using linear profit modeling calculations.
- What recommendation would you make for Baker Consolidated’s managers considering this decision? Justify your response.
- In your recommendation, be sure to calculate how the monthly operating income changes if the company replaces the cafeteria with vending machines.
How much is the business paying out versus how much it is taking in? When approaching decisions from a linear profit model, the total costs of your expenses versus the profit you bring in helps decision makers determine the viability of potential options.
Think about your personal budget: If you make x amount of money from your job (your “take in”) and you want to add a new or different expense into your finances (what you “pay out”), a linear profit model can help calculate the feasibility of this option.
Consider how calculations are an essential asset to decision making, especially when using a linear profit model. Think about how a difference in calculation can impact a short-term decision or major change in a business.
Examine cost behaviors and decision-making scenarios using the linear profit model. Write 2 pages on each, looking at the presented finances and providing recommendations on potential improvements.
Baker Consolidated operates a cafeteria for its employees. The operation of the cafeteria requires fixed costs of $4,700 per month and variable costs of 40% of sales. Cafeteria sales are currently averaging $12,000 per month.
Baker has an opportunity to replace the cafeteria with vending machines. Gross customer spending at the vending machines is estimated to be 40% greater than current sales, because the machines are available at all hours. By replacing the cafeteria with vending machines, Baker would receive 16% of gross customer spending and avoid all cafeteria costs. In a poll, employees did not express a preference for one option over the other.
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