Sweet Wave has discovered that its cherry pie filling it now manufactures at a cost of $1.00 per unit could be bought elsewhere for $0.82 per unit. Sweet Wave has fixed costs of $0.20 per unit that cannot be eliminated by buying this unit. Sweet Wave needs 460,000 of these units each year.

If Sweet Wave decides to buy the filling, rather than producing it, they can shift the machinery and labor to making a special gluten free pie crust it now buys from another company. Sweet Wave uses approximately 500 of these units each year. The cost of the unit is $12.66. To aid in the production of this unit, Sweet Wave would need to purchase a new machine at a cost of $2,345, and the cost of producing the units would be $9.90 a unit.

Instructions

Given the information above:

(a) Without considering the possibility of making the gluten free pie crust, evaluate whether Sweet Wave should buy or continue to make the cherry pie filling.

Do not use commas in your responses. For negative answers, please use "-" before the number

		Make	Buy	Change
Variable and fixed costs		$Answer	$Answer	$Answer
Fixed costs not eliminated			Answer	$Answer
Total Annual costs				$Answer
		Make	Buy	Change
Variable Costs		$Answer
Fixed Costs		$Answer
Purchase Price			$Answer	$Answer
Total cost		$Answer	$Answer

Should Sweet Wave buy or continue to make the cherry pie filling? Answer MakeBuy b1. What is Sweet Wave's opportunity cost if it chooses to buy the cherry pie filling and start manufacturing the gluten free pie crust? Do not use commas in your responses. For negative answers, please use "-" before the number

Cost of Buying		$Answer	Units used x Cost of Unit
Cost of Making		$Answer	Units used x Cost of producing each unit
Opportunity Cost		$Answer

b2. If the company adds that amount to the cost of making the filling, it still does not bring the cost up to the total cost of buying the unit. Therefore, the company would still be better off to make the filling and buy the GF pie crust.

		Make Part		Buy Part		Net Income Increase (Decrease)
Variable costs		$Answer		$ 0		$Answer
Fixed costs		$Answer		$Answer		0
Purchase price		0		$Answer		$Answer
Total annual cost		$Answer		$Answer		$Answer
Opportunity cost		$Answer
Total cost		$Answer		$Answer		$Answer