Question

We are considering hiring a catering company. Currently, we are preparing meals for employees. The following is the cost of preparing a meal: Food $3.00 Labor 2.00 Fixed overhead 1.00 Total $6.00 The caterer has quoted a price of $5.50 per meal. Please help us to determine whether we should buy meals from this catering company.

Company A can order meals for its employees from a catering company or prepare meals on-site. Use the information in the exhibit to complete the following items.

Question	Answer
1. Which option is less expensive?	Buy
2. What other factors could affect decision-making?	All of the above factors
3. Assume in addition that the rent of a kitchen for preparing meals is $200 per day, one meal is served to each employee per day, and the company has 100 employees. What is the maximum price the company should pay for a catered meal?

Answer 1

Workings
Per meal Cost
	Make	Buy
Avoidable Cost
Food	3
Direct Labour	2
Total Cost in Making	5
Buy Price(Per Unit)		5.50
Additional Cost in Buying		1
Note: Fixed Overhead Cost would not be considered as it is irrelevant cost

Que 1	Option making on Site is less Expensive
Que 2	Other Factors
	1. Quality of food
	2. timely delievry of food as per requirement
	3.Any other consideration of Employees

Que 3
	make Option Total Cost
	Variable cost(100 meal* 5)	500
	Rent per day	200
	Total Cost	700
	Total Meals	100
	Maximum Price company should pay	7	$ Per meal