Part 2

Graham Douglas is a guard dog training business based in Coventry, the United Kingdom. The business trains and sells different breeds of guard dogs. The dogs are usually purchased from local dog breeders for 250 each. The cost of feeding each dog and providing veterinary treatments is 520 per year. The dogs are usually trained for 12 months before being sold. The business employs a dog trainer and two dog walkers who are paid a total of 1,850 per dog. The company occupies a 124 sq. metre estate and pays annual rent of 15,000. Other bills such as water, gas, and electricity amount to 2,000 per annum but 50% of these are variable. The business also pays annual council tax of 1,200 for its business operation. There are no other expenses associated with the business.

The cost per trained guard dog is summarized as:

The business has recently received an order from the London Charity for the Blind Trust for the supply of 60 trained German Shepherd breed of guard dogs. The charity plans to distribute these to its members at the next Christmas.

Graham Douglas is negotiating with Billy Jack, a reputable guard dog trainer in Germany, to buy the 60 trained guard dogs at 5,000 each. REQUIRED: A. Advice Graham Douglas whether the business should buy the dogs from Billy Jack or train the dogs themselves. B. What other considerations should management consider when making a make-or-buy decision?

Alternative 1: Train the dogs: Calculation of total cost of training 60 German Shepherd breed of guard: Particulars, amounts (/pounds) of purchase of dogs = (/pounds 250 x 60 trained guard dogs) Particulars, amounts (/pounds) of purchase of dogs = 15,000 /pounds Feeding the and Veterinary treatments = (/pounds 520 x 60 trained guard dogs) Feeding the and Veterinary treatments = 31,200 /pounds Feeding the and Veterinary treatments = (/pounds 1850 wages x 60 trained guard dogs) Feeding the and Veterinary treatments = 111,000 /pounds Feeding the and Veterinary treatments = 111,000 /pounds + 31,200 /pounds Feeding the and Veterinary treatments = 142,200 /pounds Reliable portion= (/pounds 2,000 wages x 60 trained guard dogs x 0.50 (50%)) Reliable portion= 60,000 pounds

Total cost= 31,200 /pounds + 142,200 /pounds + 60,000 pounds + 15,000 /pounds Total cost= 217,200 /pounds

Train the dogs Amount / Pounds Amounts of pounds of purchase of dogs 15,000 /pounds Feeding the and Veterinary treatments 142,200 /pounds Fixed Overheads Rent 0 /pounds Council Tax 0 /pounds Water, gas, and Electricity 0 /pounds Fixed portion 0 /pounds Reliable portion 60,000 pounds Total Costs 217,200 /pounds

Alternative 2: Buy the dogs from Billy Jack :

Cost of buying = Total Fixed Cost x Average units produced

Cost of buying = 5,000 /pounds x 60 trained guard dogs

Cost of buying = 300,000 /pounds

Is the above anwser for A) right

And for B) how do I start it ; How would I lay it out to make a consideration make or buy decision e.g.

Direct labour

production cost

labour cost

production overheads variable marginal cost of production

number of units produced

Per table cost of production