A company buys dough at a cost of 150 and processes it into

A company buys dough at a cost of $150 and processes it into a usable form at a cost of $125. A load of each of the following types of dough can be sold at this point to another bakery/pizzeria at the following rates:

Type A Dough (Pizza Material):                                 $600

Type B Dough (Breadsticks Material):                       $300

Type C Dough (Calzones Material):                           $700

Alternatively, this dough can be further processed and turned into food items. A load of Type A Dough can be further processed for a cost of $3 per pizza and combined with $5 of other materials per pizza to make 50 pizzas which sell for $19 each. A load of Type B Dough can be further processed for a cost of $6 per set of breadsticks and combined with $1 of other materials per set of breadsticks to make 100 sets of breadsticks which sell for $11 each. A load of Type C Dough can be further processed for a cost of $1 per Calzone and combined with $5 of other materials per Calzone to make 35 Calzones which retail for $21.

The company is deciding whether to sell each of the three different types of dough to another bakery/pizzeria or to process them further into the final food products. Out of Type A, Type B, and Type C Dough, which should be sold as is to another bakery/pizzeria and which should be processed further into pizza, breadsticks, and calzones, respectively? Show all of your calculations.

Solution

Cost of dough, C= $150

Cost incurred in conversion, CC=$125

Total cost = $275

Alternatively if the dough is converted

Only TYPE B should not be changed to further processing as the profit reduces on processing while both the other options increase profit.