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    ZYZ Tire Sara Bakery special order outsourcing NPV IRR

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    ZYZ Tire Company has the following standard costs when producing a tire:

    Direct Materials: $17 per tire.
    Direct Labor: $15 per tire.
    Variable Overhead: $10 per tire.
    Retail Price per tire: $50 per tire.

    They have gotten a special order for 30,000 custom tires that increase direct materials by $5 per tire and direct labor by $8 per tire. If they sell at the same price, should they accept this order? Analyze this by figuring out the total relevant cost and compare this to the retail price.

    2. Outsourcing has become a reality in today's world business environment due to globalization. Read the article below which gives five examples of outsourcing. Pick one of the examples, and go through the advantages and disadvantages of outsourcing in that specific situation.

    3. Sara's Cake Company has gotten an offer from a grocery store to open up a satellite location inside the bakery of the store. You are hired as a consultant to look at the feasibility of this investment. You need to go through the following numbers to calculate the NPV and IRR of the satellite location. The proposal contract from the grocery store states that it will charge her $2000 rent per month. Her gross profit per cake (aside from rent) is $7 per cake. The grocery store will buy 500 cakes per month. The lease will be for 5 years, and it will cost Sara $25,000 to build the mini bakery room out. Sara's cost of capital is 6%.

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    Solution Preview

    Your tutorial is in excel, attached. The relevant costs are ...

    Solution Summary

    Your tutorial is in excel, attached. The relevant costs are highlighted and a schedule showing the full analysis is created. Click in cells to see computations. The McDonald's driver through outsourcing is discussed with five advantages and six disadvantages.