Read Case Study 1: Make-or-Buy Analysis (pp. 111-112) at the end of Chapter 5. In a two- to three- page paper (not including the title and reference pages), respond to the items addressed below. Make sure your responses are complete and thorough. In addition to your responses, you will be graded on the accuracy of your calculations.
Your task in this assignment is to assist the director of Wuksachi Restaurant to make a decision. Prepare an analysis showing what the total cost and the cost per dinner roll would be under each of the two alternatives given in the case study. Assume that 150,000 dinner rolls are needed each year.
In your analysis
- Determine a course of action you would recommend to the director, justifying your response.
- Provide and justify recommendations if the company’s needs were (a) 200,000 rolls per year and (b) 250,000 rolls per year.
- Describe other factors that the director should consider before making a decision.
You must cite and reference the textbook and at least two other scholarly sources. Your paper must be formatted according to APA style as outlined in the Ashford Writing Center.
case study 1:
“In my opinion, we ought to stop making our dinner rolls and accept that outside supplier’s offer,” said Mary, managing partner at Wuksachi Restaurant. “At a price of 15 cents per dinner roll, we would be paying 50 cents less than it costs us to bake the bread in-house. Since we use 150,000 rolls a year, that would be an annual cost savings of $75,000,” Wuksachi’s actual cost to prepare these dinner rolls is shown below (based on 150,000 dinner rolls per year):Direct material$20,500Direct labor$36,200Variable overhead$20,800Fixed overhead ($2.80 general company overhead, $1.60 depreciation, and $0.75 supervision)$20,000Total cost per roll$0.65A decision about whether to make or buy the bread is especially important at this time, since the oven used to make the bread is completely worn out and must be replaced. The choices facing the restaurant are as follows:
- Alternative 1: Purchase a new baking oven and continue to make the rolls. The oven would cost $18,000; it would have ten years of useful life and no salvage value.Alternative 2: Purchase the dinner rolls from an outside supplier at 15 cents per roll under a one-year contract.
The new baking oven would be more efficient than the oven that Wuksachi Restaurant has been using and, according to the manufacturer, would reduce direct labor and variable overhead costs by 20 percent. The restaurant would use the space now being used to produce the rolls for storage and an additional refrigerator.Your task:
- 1.To assist the director in the making a decision, prepare an analysis showing what the total cost and the cost per dinner roll would be under each of the two alternatives given above. Assume that 150,000 dinner rolls are needed each year. Which course of action would you recommend to the director?
- 2.Would your recommendation in (1) above be the same if the company’s needs were: (a) 200,000 rolls per year or (b) 250,000 rolls per year? Show calculations to support your answer, with cost presented on both a total and a per-unit basis.
- 3.What other factors would you recommend that the director consider before making a decision?
Ojugo, Clement. Practical Food and Beverage Cost Control, 2nd Edition. Cengage Learning, 20090331. VitalBook file.
The citation provided is a guideline. Please check each citation for accuracy before use.