Scenario: A supplier has offered to sell you ready-to-eat Tiramisu Chocolate Fud

Question

Scenario:

A supplier has offered to sell you ready-to-eat Tiramisu Chocolate Fudge Cakes for $6.00 each. As the purchasing agent, you need to determine if it will be more cost-effective to buy the ready-to-eat cake, or to make the cakes from scratch. To make the cake, you have to pay an employee $7.45 per hour, plus $1.50 per hour for benefits. Assume that the employee can make 18 cakes per hour.

Total Ingreditent cost tper cake is 108.07

What is the Total Labor Cost per cake?

What is the Total benefits cost per cake?

Total cost per cake?

What is the Price savings/ loss per cake if you make the cake from scratch?

Explanation / Answer

As labour cost per hour is $7.45 and employee makes 18 cakes per hour, so clearly

total labor cost per cake = 7.45/18 = $0.4138         (This is the first answer)

Similar total benefit cost = 1.5/18 = $ 0.083         (This is second answer)

So total cost per cake = total labor cost per cake + total benefit cost per cake +total ingredient cost per cake

= $0.4238 + 0.083 + $ 108.07

=$ 108.58                   (This is third answer)

Now as the purchasing price from supplier is just $6, so clearly he is in the loss here if he make the cake from scratch and total loss = 108.58 - $6 = $102.58

(This is fourth answer)

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