question archive An events company is deciding whether to provide catering in-house or to outsource meals
An events company is deciding whether to provide catering in-house or to outsource meals
Subject:BusinessPrice: Bought3
An events company is deciding whether to provide catering in-house
or to outsource meals. You volunteer to help the financial manager make the decision. The financial manager gives you the following information on the two options.
Year 0 Year 1 Year 2 Year 3
Kitchen equipment - 15 000 + 75 000
Ingredients - 100 000 - 112 000 - 124 000
Salaries of the kitchen staff - 40 000 - 45 000 - 50 000
Opportunity cost of the kitchen
space - 60 000 - 72 000
Electricity and water - 15 000 -20 000 - 25 000
Total in house costs - 150 000 - 215 000 - 249 000 - 124 000
Cost of outsourcing
Year 0 Year 1 Year 2 Year 3
Payments to caterer - 300 000 -350 000 -375 000
Consider a cost of capital of 12%, which option should be chosen? x 10 marks
