Part 1 Barry’s Bar-B-Que is a popular lunch time spot. Barry is conscientious about the quality of his meals, and he has a regular crowd of 600 patrons for his $5 lunch. His variable costs for each meal is about $2, and he figures his fixed costs, on a daily basis, are about $1,200. From time to time, bus-tour groups with 50 patrons stop by. He has welcomed them because he has capacity to seat 700 diners in the average lunch period, and his cooking and wait staff can easily handle the additional load. The tour operator generally pays for the entire group on a single check to save the wait staff and cashier additional time. Due to competitive conditions in the tour business, the operator is now asking Barry to lower the price to $3.50 per meal for each of the 50 bus-tour members.

REQUIRED:
A. What is the incremental profit (or loss) per bus-tour meal, assuming the current price of $5
per meal? Should Barry accept the bus-tour offer? Explain your answer.
B. What if the tour company were willing to guarantee 200 patrons (or four bus loads) at least
once a month for $3.00 per meal? What is the incremental profit (or loss) for each meal? Is
the offer financially attractive ie should Barry accept this offer?
C. How does the existence of excess capacity affect the decision to accept or reject a special
order?

Part 2
Graham Douglas is a guard dog training business based in Coventry, the United Kingdom. The
business trains and sells different breeds of guard dogs. The dogs are usually purchased from local
dog breeders for £250 each. The cost of feeding each dog and providing veterinary treatments is
£520 per year. The dogs are usually trained for 12 months before being sold. The business employs a
dog trainer and two dog walkers who are paid a total of £1,850 per dog. The company occupies a
124 sq. metre estate and pays annual rent of £15,000. Other bills such as water, gas, and electricity
amount to £2,000 per annum but 50% of these are variable. The business also pays annual council
tax of £1,200 for its business operation. There are no other expenses associated with the business.
The cost per trained guard dog is summarized as:
£
Purchase of dog 250
Feeding and veterinary treatments 520
Wages 1,850
Fixed overheads:
Rent 15,000
Council tax 1,200
Water, gas and electricity 2,000
Total cost 20,820
The business has recently received an order from the London Charity for the Blind Trust for the
supply of 60 trained German Shepherd breed of guard dogs. The charity plans to distribute these to
its members at the next Christmas.
Graham Douglas is negotiating with Billy Jack, a reputable guard dog trainer in Germany, to buy the
60 trained guard dogs at £5,000 each.
REQUIRED:
A. Advice Graham Douglas whether the business should buy the dogs from Billy Jack or train
the dogs themselves.
B. What other considerations should management consider when making a make-or-buy
decision?