Annie's Homemade is deciding whether to make its own ice cream mix or buy it from a supplier. Ice cream mix, which includes ingredients such as milk, cream, sugar, and light corn syrup, is the foundational component of all ice cream flavors. The law requires that ice cream mix be pasteurized at a pre-specified temperature for a pre-specified period of time. Once the mix is pasteurized various ingredients, such as vanilla extract, chocolate chips, chocolate powder, brownies, peanut butter cups, and cookies can be added to this blank canvas to create specific flavors.

A supplier has offered to sell Annie's pasteurized ice cream mix for a price of $10 per gallon. The minimum order size is 250 gallons with an associated shipping cost of $500 per order. Due to limited temperature-controlled storage capacity, Annie's would need to restrict its order size to the suppliers minimum of 250 gallons.

If Annie's makes its own ice cream mix, it would have to rent a pasteurization system for $400 per month. The company pays rent of $3,000 per month for its 1,500 square-feet shop locationof which 225 square-feet would be occupied by the pasteurization system. Whether Annie's buys its ice cream mix from a supplier or makes and pasteurizes its own mix the overall square footage of the shop and the monthly rent will remain unchanged.

If Annie's makes its own mix the ingredient cost is $9.00 per gallon. One salaried employee (who is paid $45,000 per year) would oversee Annie's production and pasteurization of its own mix. It would take this employee two hours to make and pasteurize 12.5 gallons of ice cream mix. For every hour the salaried employee works making and pasteurizing ice cream mix, the company would pay another employee $15.00 per hour to step in and manage the shops other concurrent operations.

Required:

1. What is the financial advantage (disadvantage) of buying 250 gallons of ice cream mix per month from the supplier?

1. What is the financial advantage (disadvantage) of buying 500 gallons of ice cream mix per month from the supplier?