Carlos, an Italian ice cream manufacturer, is considering extending his product range to include frozen yogurt, boxes of frozen chocolates, and sorbets. He could either buy in products made to his specification or consider manufacturing them himself. If he manufactures them, he would have to buy additional equipment for each product range. All manufactured products will be charged with 10% of sales revenue to cover the overheads of the business.

REQUIRED:

Use the data in Table 14.11 to assess which products he should buy-in or make himself:

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Table 14.11 New frozen products: make or buy analysis Yogurt Boxes of chocolates Sorbet Sales demand per annum 1.0m units 1.25m units 2.0m units Sales price per 100 units 150 225 80 Equipment cost 250,000 350,000 125,000 Bought-in price per 100 units 95 150 60 Raw materials per 100 units 30 50 20 Variable labour costs per 20 50 10 100 units Distribution cost per 100 units 15 30 11.75 Allocation of overhead-10% 15 22.5 8 of sales