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Harrys Pies currently makes the crust in-house for the various pies it sells at its stores. It uses 60,000 crusts annually in the production of
Harrys Pies currently makes the crust in-house for the various pies it sells at its stores. It uses 60,000 crusts annually in the production of its bestselling pies. The costs to make the crusts are:
Materials | $ 0.23 per crust |
Labour | $ 0.35 per crust |
Variable Overhead | $ 0.25 per crust |
Fixed Overhead | $ 0.27 per crust |
A nearby bakery has offered to sell the crusts for $0.85 each to Harrys Pies. If the crusts are purchased, 30% of the fixed overhead could be avoided.
- Calculate the relevant costs for Harrys Pies if it continues to make its own pies. (2 marks)
- Calculate the relevant costs for Harrys Pies if it purchases from the nearby bakery. (2 marks)
- If Harrys Pies accepts the offer, calculate the effect on profit. (2 marks)
- Should Harrys Pies accept or reject the bakerys offer? (1 mark)
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