|Opportunity Cost Gone Wrong|
I did a couple of posts on opportunity cost that both brought out some great discussion in the comments section of each post. You can review those 2 posts on Opportunity Cost if you need to get caught up to speed.
Opportunity Cost - A Listener Question
Opportunity Cost Part 2
The Bake Sale
Shortly after I did those posts on opportunity cost, we started a fund raising bake sale at work. Employees were to either bring in baked goods to sell to employees and customers or make a cash donation that would go towards the cancer charity that the proceeds would be going to. It seemed like a good idea, but once I started to look into the costs and profits I soon began to question the thinking of the other participants.
The basic set-up was to have everything cost 50 cents each on the baked goods table and all money raise would go to the cancer charity.
I began to look into the cost to create these baked goods as well as the portion sizes and return on investment. This is where things were starting to not add up for me.
Let's look at one example. Someone baked brownies and brought them in for the charity sale. The divided the large brownie into 9 pieces (twice the size the food label showed as appropriate portions) packaged them in some fancy baggies and added a pink bow to hold them closed. Then they added a sticker with the price of 50 cents. I instantly started to run some calculations in my head as I am also a cook and brownies are one of my specialties.
I thought, "If we are selling these at this low of a price for this portion, then couldn't we raise more money by just donating the money it cost to buy the ingredients and skip the bake sale all-together?"
Digging Deeper Into The Brownies
Dozen Eggs $1.19
Brownie Mix (boxed) $2.29
Vegetable Oil $1.29
Total out of pocket: $4.77 plus tax = $4.80
Brownies Were Cut Into 9 Servings
Cost per serving = $0.53
(This doesn't even include the fancy baggies, pricing stickers, or pink bows that were used to decorate each serving)
The fact that you have a bit of oil left and 9-10 more eggs left over is irrelevant as we are looking at the cost you came out of pocket vs the donation amount earned.
So yeah, in this example it would have been better to just donate the $4.80 to the fund instead of wasting time and effort making brownies to sell at a cost less than it cost to craft. Even if all 9 brownies sold, the total raised was only going to be $4.50. To further compound the poor decision, management was matching all funds raised with an exact amount. So you cost yourself $4.80, but only raised $4.50 (if all sold). So $.30 less when doubled makes $.60 you cost the fund raiser, when you could have just donated $5 and been much more efficient.
Not all the brownies sold. So now you've really wasted your time and money. The even crazier thing was the brownies were the closest priced item to breaking even. Everything else was selling for 50 cents as well and the crafting cost on gooey butter cake and other fancier items is much higher than the cheap brownies.
Someone even went as far to buy a premade gooey butter cake, which costs around $8. this cake was split into 9 pieces and sold for 50 cents apiece. Really? You cut a $8 cake to make $4.50? Just donate the $8 you fool! After the management doubles that donation its $16 vs the $9 if all the cake pieces sold.
Moral of the Story for WoW
When thinking about crafting your trade goods in World of Warcraft, always use your brain. The basic formula to follow is this:
Sum of Parts > Crafted Good = Sell Parts
Sum of Parts < Crafted Good = Sell Crafted Goods
A wise goblin doesn't craft to lose money. Crafting should only be done if you are adding value to the item and you can sell that item for more than the cost of the materials required.
PS: What did I do for the fund raiser? Well, I bought baked goods for stupid low prices and got food with my donation. Like any good goblin, I got the most for my money.