1. Fresh Foods, a large restaurant chain, needed to determine if it would be cheaper to produce 5,000 units of its main food ingredient for use in its restaurants or to purchase them from an outside supplier for $12 each. Cost information on internal production includes the following: Direct materials Direct labor Variable manufacturing overhead Variable marketing overhead Fixed plant overhead Total Total cost $25,000 15,000 7,500 10,000 30,000 $87,500 Unit cost $5.00 3.00 1.50 2.00 6.00 $17.50 Fixed overhead will continue whether the ingredient is produced internally or externally. No additional costs of purchasing will be incurred beyond the purchase price. Which alternative (make or buy) is more cost effective and by how much?

Fresh Foods, a large restaurant chain, needed to determine if it would be cheaper to produce 5,000 units of its main food ingredient for use in its restaurants or to purchase them from an outside supplier for $12 each. Cost information on internal production includes the following: Fixed overhead will continue whether the ingredient is produced internally or externally. No additional costs of purchasing will be incurred beyond the purchase price. Which alternative (make or buy) is more cost effective and by how much