Analysis of Decision to Buy or Make Cake

After conducting an analysis of the costs of labor and the costs of ingredients to make cakes it becomes apparent that making cakes costs less than buying cakes. Table 1 shows the costs to make Cake based on all of the ingredients. The total cost for the ingredient was rounded up to give a conservative cost of the ingredients for each cake.

Table 1: Costs of ingredients for Cake

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Ingredient
Quantity
Cost of Ingredient
Conversion Steps
Cost of Ingredient in Cake
Shortening
12 ounces
shortening: \$0.32 per pound
1 pound = 16 ounces so 12 ounces = ¾ pound. Formula is ¾ * .32
\$       0.24
Sugar
2 pounds
sugar: \$18.22 per 50 pounds
1 pound of sugar = 18.22/50 = .36 and 2* .36 = .72
\$       0.73
Vanila
1 1/2 ounces
vanilla: \$6.85 per pint
1 US fluid ounce = 0.0625 US pints so formula is:

.0625 * .6.85 * 1.5  = .64
\$       0.64
Eggs
6
eggs: \$1.29 per dozen
6 is /12 of 12 so formula is

½ * 1.29
\$       0.65
Cocoa
5 ounces
cocoa: \$2.12 per pound
1 ounce = 0.0625 pounds so formula is

2.12 * .0625 * 2.12 = .66
\$       0.66
Cake Flour
1 pound, 12 ounces
cake flour: \$11.09 per 50 pounds
1 oz = .0625 lbs

Formula is

(11.09/50) * 1.75 = .39
\$       0.39
Salt
1/4 ounce
salt: \$0.11 per pound
Formula is

.25*.0625*.11
\$       0.01
baking soda
1 ounce
baking soda: \$0.24 per pound
Formula is:

.0625 * .24
\$       0.02
Buttermilk
1 1/2 pints
buttermilk: \$2.45 per gallon
1 Pint = 0.125 Gallons so formula is

1.5*.125*2.45
\$       0.46
Total

\$3.79

Labor for 1 hour is \$9.25 plus an additional \$1.50 for fringe benefits for a total of \$10.75. The employee produces 24 cakes in one hour so labor for 1 cake is \$10.75/24 or \$0.45 for each cake. Thus the total for one cake is \$3.79 + \$0.45, or, \$4.24. Since it costs \$6.00 to purchase a cake and costs \$4.24 to make one, the baker should make the cake to realize a saving of \$1.76 for each cake.

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