Question

French Hyros (pronounced Hero’s) is chain or fast food restaurant specializing in gyros with a French flavor profile.   The four most popular gyros sold are the Depardieu, the Bellanger, the Francois, and the Zidane.

Peta bread is made in each location and is the single costliest item.

Materials cost = $0.724/unit (pita bread only)

Labor cost = $0.490/unit (pita bread only)

Overhead = $96,120/year (pita bread only)

An outside supplier has approached you and has bid $1.40/unit plus an upfront annual fee of $25,000 to take over the production of the pita bread .

Compare the two scenarios over the first year using 270,000 units.

What is the result if French Gyros outsources their pita bread?

		Accept cost is $20,900 less
		Reject, cost is $9,800 more
		Reject, cost is $98,170 more
		Reject, cost is $132,300 more

Answer 1

Cost of making = (0.724+0.490)*270,000 + 96120

= 423,900

Cost of buying = (270,000*1.40) + 25,000

= 403,000

Accept, cost is 20,900 less

Option A is the answer