Foley Foods produces frozen meals targeted at the college student market. The production takes place in four stages: Preparation, in which the food is cleaned and cut; Cooking;Freezing; and Packaging. The company has a bottleneck in the Preparation stage, as shown below. Each "unit" refers to a container of 144 frozen meals.
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Preparation
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Cooking
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Freezing
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Packaging
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Hourly Capacity
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300 Units
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312 Units
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320 Units
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340 Units
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Actual Hourly Capacity
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300 Units
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300 Units
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300 Units
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300 Units
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Each unit sells for $200 and has a variable cost of $120.
Option a. Foley can increase Preparation output by renting additional equipment that would cost $200 per hour and increase the hourly capacity in Preparation by 5 units.
Option b. Foley can pay its suppliers to perform some of the food preparation. This option would cost Foley $2 more per unit and would enable the company to increase its hourly output in Preparation by 10 units.
Foley can take either or both options as presented if viable. If both options are taken, the cost increases in Option b would apply to 310 units.
What do you recommend? Show computations to support your answer