Question
Skyline Confectioneries manufactures a gourmet chocolate bar and is contemplating whether to make the special cocoa powder in-house or sign a contract with CocoDelight Industries
Skyline Confectioneries manufactures a gourmet chocolate bar and is contemplating whether to make the special cocoa powder in-house or sign a contract with CocoDelight Industries to supply the cocoa powder. Skyline's expertise lies in crafting the chocolate bars, but they are pondering the feasibility of producing the cocoa powder themselves. To establish a cocoa powder production unit at Skyline Confectioneries, the fixed costs amount to $350,000 per year, and the estimated variable cost of production in-house is $7.50 per kilogram of cocoa powder. If Skyline contracts out the production of the cocoa powder to CocoDelight, CocoDelight will bill Skyline $12 per kilogram. Should Skyline Confectioneries outsource the production of the cocoa powder to CocoDelight if they require 30,000 kilograms of cocoa powder a year?
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