Question 1 Three Bags Full is a small grocery store chain in Halifax, NS. The co

Question

Question 1 Three Bags Full is a small grocery store chain in Halifax, NS. The company is trying to decide whether to include a bakery section in its stores. You have been asked to run the numbers using pies as an example. Baking the pies inhouse would cost $80 per day and $1 per pie. Pies can be purchased for $4 each from a local bakery, or $3 each from a large regional bakery. The regional bakery requires a minimum purchase of 25 pies per day. Which alternative would you recommend? (Round answer to the nearest whole number, the tolerance is +/- 1) If demand than Three Bags Full should open an in-house bakery.

Explanation / Answer

The total cost of Baking pies inhouse would be =

number of pies required X cost per pie + Fixed cost= 25 X 1 + 80= $105

The total cost of purchasing pies from large regional bakery =

Number of pies required X cost of purchasing one pie = 25 X 3 = $75.

Thus, choosing the second alternative is best as it saves the financial resources of the company.

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