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We are considering hiring a catering company. Currently, we are preparing meals for employees. The following...

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Accounting

We are considering hiring a catering company. Currently, we arepreparing meals for employees. The following is the cost ofpreparing 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 helpus to determine whether we should buy meals from this cateringcompany.

Company A can order meals for its employees from a cateringcompany or prepare meals on-site. Use the information in theexhibit 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 preparingmeals is $200 per day, one meal is served to each employee per day,and the company has 100 employees. What is the maximum price thecompany should pay for a catered meal?

Answer & Explanation Solved by verified expert
4.3 Ratings (766 Votes)

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

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