Question

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 in-house 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 prefer? Please make sure to clearly explain your reasoning and to indicate the break-even points for each alternative.

Answer 1

Solution:

We will initially think about making it in the house or buy from the local bakery.

Let the relating volume to be delivered = N

Cost of Baking them in the house for N units

= Fixed cost + Variable cost/unit x N units

= 80 + N

Cost of buying N units from the local bakery = Cost/unit x N = $4.N

Heating in the house will be best, gave absolute expense of preparing in the house will be less expensive than the all-out expense of purchasing from the local bakery

Hence,

• 80 + N < 4.N
• 3N > 80
• Or then again, N > 80/3
• Or then again N > 26.66

Hence for an amount of 27 pies or more, preparing in the house will be ideal

For amount 26 or beneath, getting it from the nearby provider will be ideal

We will presently look at between preparing in house versus heating at the regional bakery for N units :

All out expense of heating in house = 80 + N

The complete expense of heating at the regional bakery= 3.N

When heating in the house will be ideal, the complete expense of preparing in the house will be less expensive than purchasing from a regional bakery,

Therefore :

• 80 + N < 3.N
• Or on the other hand, 2.N > 80
• Or on the other hand, N > 40

In this manner for amount, 41 or more preparing in the house will be best

For Quantity 25 – 41 purchasing from the regional bakery will be ideal ( note: least request amount should be 25 )

Since purchasing from the local bakery costs $3/unit and purchasing from the local bakery costs $4/unit, purchasing from the regional bakery will be constantly less expensive. Anyway, least request amount for purchasing from the local bakery is 25 pies

In this manner, for amount 25 or more, purchasing from the regional bakery is best

For amount underneath 25, purchasing from the local bakery is best

Considering aftereffects of estimations together done in #a, #b, and # c, we can close :

• For amount underneath 25, purchase from the local bakery
• From amount piece 25 – 40 purchase from the regional bakery
• For amount piece 41 or more heating in the house will be ideal

Three Bags full should arrange from nearby bread shop if day by day interest for pies is less than 25. In the event that day by day request is more prominent than 40, Three Bags Full ought to heat pies in house