Exercise - Incremental Analysis and Opportunity Cost
Finn's Seafood Restaurant has been approached by New England Investments, which wants to hold an employee recognition dinner next month. Lillian Sumner, a manager of the restaurant, agreed to a change of $70 per person, for food, wine, and dessert, for 175 people. She estimates that the cost of unprepared food will be $35 per person and beverages will be$13 per person.
To be able to accommodate the group, Lillian will have to close the restaurant for dinner that night. Typically, she would have served 190 served people with an average bill of $54 per person. On a typical night, the cost of unprepared food is $20 per person and beverages are $16 per person. No additional staff will need will need to be hired to accommodate the group from New England Investments.
Required
a. Calculate the incremental profit or loss associated with accepting the New England investments group.
b. What was the opportunity cost of accepting the New England Investments group?
c. Should Lillian have considered any qualitative factors in her decision? Explain.