Reference no: EM132963162

Problem - A restaurant currently bakes all their own dessert offerings. The costs for these desserts average $2.50 of labor and $3 of ingredients; there are dedicated storage costs of $400 per year. The restaurant sells approximately 2,000 desserts per year at an average price of $7.50. A nearby bakery approaches the restaurant with an offer to supply their desserts. The bakery would charge the restaurant $6 per dessert, and because they will be supplying on a daily basis the restaurant will no longer incur the dedicated storage costs. Should the restaurant continue to make their own desserts or should they buy from the bakery?

Required for Honors/ Extra Credit for others If the restaurant decides to go ahead with the bakery, they will only buy 1,800 desserts from the bakery; the restaurant will continue to make the remaining 200 desserts for the same costs (materials, labor and overhead) as at present. Would this change your answer about whether the restaurant should buy from the bakery or not?