You are working as a management accountant for Emirates Catering Services, a UAE-based company specializing in large-scale catering for airlines, corporate clients, and events. The company is evaluating the feasibility of expanding its meal production capacity due to rising demand from airline contracts. Management needs a detailed CVP analysis to determine the financial viability of this expansion.
Emirates Catering Services incurs fixed costs of AED 12,500,000 per year, including rent, salaries, and utilities.
Variable costs per meal are AED 18, including raw materials, packaging, and direct labor.
The company currently produces and sells 1,200,000 meals per year at a selling price of AED 35 per meal.
Your write-up should answer the following questions:
Calculate the total contribution margin and contribution margin per unit.
Determine the current total profit or loss using the contribution margin approach.
Compute the break-even point in units and revenue.
If the company wants to achieve a target profit of AED 5,000,000, determine the number of meals it must sell.
Discuss the feasibility of achieving this target given current sales levels.
Due to inflation, variable costs are expected to increase by 10%. Calculate the new break-even point and target sales required to maintain the same profit level.
If Emirates Catering Services decides to increase meal prices by AED 3, how does this impact the break-even point and profitability?
The company has an opportunity to secure a one-time bulk order of 100,000 meals at AED 28 per meal. Analyze whether this order should be accepted, considering incremental revenue and costs.
Discuss potential qualitative factors (e.g., supplier constraints, reputation effects) that could influence this decision.
Research and discuss how similar businesses in the UAE have handled large-scale catering contracts and their impact on financial stability and operational efficiency
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