Henri of Henri’s French Cuisine (HFC), a chain of 12restaurants, is trying to decide if it makes sense to outsource thepurchasing function. Currently, Henri employs two buyers at anannual fixed cost of $85,000. Henri estimates that the variable costof each purchase order placed is $15. Value-Buy (VB), a group ofpurchasing specialists, will perform the purchasing function fora fixed annual fee of $100,000 plus $5 for each purchase orderplaced. Last year, HFC placed 1450 purchase orders.(a) What was the cost last year to HFC when doing thepurchasing in-house?(b) What would the cost have been last year had HFC usedValue-Buy?(c) What is the indifference point for the two alternatives?(d) If HFC estimates it will place 1600 purchase orders nextyear, should it use VB?(e) What additional factors should be considered by HFC?
Henri of Henri’s French Cuisine (HFC), a chain of 12
restaurants, is trying to decide if it makes sense to outsource the
purchasing function. Currently, Henri employs two buyers at an
annual fixed cost of $85,000. Henri estimates that the variable cost
of each purchase order placed is $15. Value-Buy (VB), a group of
purchasing specialists, will perform the purchasing function for
a fixed annual fee of $100,000 plus $5 for each purchase order
placed. Last year, HFC placed 1450 purchase orders.
(a) What was the cost last year to HFC when doing the
purchasing in-house?
(b) What would the cost have been last year had HFC used
Value-Buy?
(c) What is the indifference point for the two alternatives?
(d) If HFC estimates it will place 1600 purchase orders next
year, should it use VB?
(e) What additional factors should be considered by HFC?
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 2 images
