Maple Garden Products (MGP) currently purchases BBQ sauce from an external supplier but is thinking about bringing it in-house. Currently, MGP acquires 500 barrels (100,000 gallons) of BBQ sauce on a monthly basis. Each barrel of BBQ sauce cost $64 per barrel. Transportation costs were paid by MGP and were $8 per barrel MGP ran 24 hours a day for five days a week (each day had three separate eight-hour shifts). The average worker wage was $20/per HR. Workers take an average of 10 minutes to handle each barrel (including sanitation, adding other components, etc.) Additional procurement costs (including overhead) were $0.02 per gallon.

If MGP were to instead produce the product internally, the following would occur: The mix would be 60% ketchup, 20% mayo, and 20% water. Ketchup would cost $0.15 per gallon, including freight. Mayo costs $0.1875 per gallon but is delivered in 15,000 gallon quantities. Water would only cost $0.025 per gallon. The production department believes the change to in-house would not require any incremental workers. However, producing in-house would take up more of the current staff's time. It is estimated that moving in-house would lead to total other costs (DL and MOH) of approximately $0.105 per gallon of BBQ sauce. This was under an assumption of standard costing. Should MGP make or buy the product?

Answer rating: 100% (QA)

To determine whether MGP should make or buy the BBQ sauce lets compare the costs of each option 1 Co... View the full answer