May Corporation Case Study Solution

II. May Corporation Case
3.1 Downsizing Cafeteria Plan
May Corporation is currently subsidizing cafeteria services for its 200 employees. The current cafeteria operation has four employees with a combined base annual salary of $110,000 plus additional employee benefits at 25% of salary. The cafeteria operates 250 days each year, and the costs for utilities and equipment maintenance average $30,000 annually. The daily sales include 100 entrées at $4.00 each, 80 sandwiches or salads at an average price of $3.00 each, plus an additional $200 for beverages and desserts. The cost of all cafeteria supplies is 60% of revenues. May is willing to continue to subsidize the reduced operation but will not spend more than 20% of the current subsidy. The current cafeteria plan is projected as follows:
Current Cafeteria Plan
Annual revenues {[(100 entrées  $4) + (80 salads/sandwiches  $3) + $200 beverages/dessert]  250 days} $210,000
Annual cost

Hence, they are having a dilemma on deciding whether to downsize the cafeteria staff and offered a reduced menu or contract with an outside vendor, which in this case is Wilbert Food. Wilbert has proposed to pay May $1,000 per month for the use of the cafeteria and utilities. May would be expected to cover equipment repair costs. In addition, Wilbert Food would pay May Corporation 4% of all revenues received above the breakeven point. This payment will be made at the end of the year. All other costs incurred by Wilbert Food to supply the cafeteria services are variable and equal 75% of revenues. Wilbert plans to charge $5.00 for an entrée, and the average price for the sandwich or salads would be $4.00. All other daily sales are expected to average $300. Wilbert Food expects daily sales of 66 entrée and 94 sandwiches or salads. This offer is projected as