Make-or-buy Beau’s Bistro has a reputation for providing good value for its menu prices. The desserts, developed by the pastry chef, are one of the distinctive features of the menu. The pastry chef has just given notice that he will relocate to another city in a month and has volunteered to share some of the dessert recipes with the next pastry chef. Beau has been concerned about the Bistro’s declining profits but is reluctant to raise prices because of the competition he faces. He decided this was an opportune time to consider outsourcing dessert production. Beau solicited bids for dessert production and delivery and is evaluating two bids as well as the alternative of hiring a new pastry chef who would make the desserts in-house. The first bid is from a gourmet dessert provider who would fill the Bistro’s current dessert demand for $5,500 per month and would periodically introduce new gourmet desserts. The second bid is from a dessert provider who would provide high-quality, traditional desserts to fill Bistro’s current demand (in terms of servings) for $5,000 per month. Beau has identified the following costs per month if the desserts are made in-house:
Ingredients....... $500
Pastry chef labor..... 3,500
Assistants’ labor..... 1,500
Variable overhead..... 200
Total......... $5,700
Required
(a) What qualitative factors are relevant for this decision?
(b) Would you advise Beau to outsource dessert production? Provide reasons for your decision.