Z Outreach is opening a kitchen to provide hot meals for the local homeless population. They are trying to decide how much of the cooking process to handle themselves, and how much to outsource to a national organization that specializes in these operations. Doing the cooking themselves has a lower variable cost, but requires investing in equipment. They are considering the following three options:
(1) Outsource all operations, for a variable cost of $0.90 per meal
(2) Invest in basic equipment only, and outsource remaining tasks
Fixed Cost: $1,500/year
Variable Cost: $0.55 per meal
(3) Invest in all necessary equipment, and do not outsource
Fixed Cost: $3,000/year
Variable Cost: $0.35 per meal
You can assume that there are no differences in quality or reliability; the decision will be made entirely based on cost.
NOTE: SHOW ALL YOUR WORK.
Comparing only options 1 and 2, how many meals per year must be served to justify Z investing in the basic equipment?
How many meals per year must be served to justify Z investing in all necessary equipment, given that both other options are available?
For what range of meals per year should Z invest in basic equipment only?