A company buys dough at a cost of $150 and processes it into a usable form at a
ID: 2475375 • Letter: A
Question
A company buys dough at a cost of $150 and processes it into a usable form at a cost of $125. A load of each of the following types of dough can be sold at this point to another bakery/pizzeria at the following rates:
Type A Dough (Pizza Material): $600
Type B Dough (Breadsticks Material): $300
Type C Dough (Calzones Material): $700
Alternatively, this dough can be further processed and turned into food items. A load of Type A Dough can be further processed for a cost of $3 per pizza and combined with $5 of other materials per pizza to make 50 pizzas which sell for $19 each. A load of Type B Dough can be further processed for a cost of $6 per set of breadsticks and combined with $1 of other materials per set of breadsticks to make 100 sets of breadsticks which sell for $11 each. A load of Type C Dough can be further processed for a cost of $1 per Calzone and combined with $5 of other materials per Calzone to make 35 Calzones which retail for $21.
The company is deciding whether to sell each of the three different types of dough to another bakery/pizzeria or to process them further into the final food products. Out of Type A, Type B, and Type C Dough, which should be sold as is to another bakery/pizzeria and which should be processed further into pizza, breadsticks, and calzones, respectively? Show all of your calculations.
Explanation / Answer
Cost of dough, C= $150
Cost incurred in conversion, CC=$125
Total cost = $275
Alternatively if the dough is converted
Only TYPE B should not be changed to further processing as the profit reduces on processing while both the other options increase profit.
Cost incurred Selling Price Profit Type A 275 600 325 Type B 275 300 25 Type C 275 700 425Related Questions
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