Question

Make-or-Buy analysis- Mary and Sue, have decided to open a bagel shop. Their first decision is whether they should make the bagels on-site or buy the bagels from a local bakery. If they buy from the local bakery they will need airtight containers at a fixed cost of $1000 annually. They can buy the bagels for $0.40 each. If they make the bagels in-house they will need a small kitchen at a fixed cost of $15,000 annually. It will cost them $0.15 per bagel to make. They believe they will sell 60,000 bagels.

1. Mary and Sue wants to know if they should make or buy the bagels.

FCBuy + (VCBuy x Q) = $1,000 + ($0.40 x 60,000) = $25,000

FCMake + (VCMake x Q) = $15,000 + ($0.15 x 60K) = $24,000

Answer 1

Mary and Sue should choose to make the bagels in-house based on the make-or-buy analysis.

Step-by-step explanation:

The make-or-buy analysis is a decision-making tool used by businesses to determine whether it is more cost-effective to produce a product or service in-house or to buy it from an external supplier. In this case, Mary and Sue are deciding whether to make the bagels on-site or buy them from a local bakery. They have calculated the costs involved in both options and determined that the total cost of buying the bagels is $25,000, while the total cost of making the bagels is $24,000. Therefore, based on the cost analysis, it would be more cost-effective for Mary and Sue to make the bagels in-house.