QUESTION 5 - MAKE VS BUY (30 MIN)

MAKE VS BUY Maple Garden Produts (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 eah barrel (including sanitation, adding other componets, etc.) Additoinal 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?