Question 1

Suppose a Roasted Olive restaurant is considering whether to (1) bake bread for its restaurant in-house or (2) buy the bread from a local bakery. The chef estimates that variable costs of making each loaf include $0.54 of ingredients, $0.23 of variable overhead (electricity to run the oven), and S0.78 of direct labor for kneading and forming the loaves. Allocating fixed overhead (depreciation on the kitchen equipment and building) based on direct labor assigns $0.99 of fixed overhead per loaf. None of the fixed costs are avoidable. The local bakery would charge Roasted Olive $1.80 per loaf. 1. What is the absorption cost of making the bread in-house? What is the variable cost per loaf? 2. Should Roasted Olive bake the bread in-house or buy from the local bakery? Why? 3. In addition to the financial analysis, what else should Roasted Olive consider when making this decision? 1. What is the absorption cost of making the bread in-house? What is the variable cost per loaf? Roasted Olive Outsourcing Decision (Absorption Costing) Variable cost per loaf Full (absorption) cost per loaf 2. Should Roasted Olive bake the bread in house or buy from the local bakery? Why? Neolinn Time Romaininn. 14.95 2. Should Roasted Olive bake the bread in-house or buy from the local bakery? Why? Decision: since the the cost of outsourcing each loaf. 3. In addition to the financial analysis, what else should Roasted Olive consider when making this decision? Roasted Olive should consider the following qualitative factors before making a final decision: O A. If labor and oven time were not devoted to breadmaking, could another more profitable product be made in its place? O B. How does the quality and freshness of the local bakery bread compare to Roasted Olive bread? OC. Will the local bakery meet their delivery time requirements? OD. All of the above O E. None of the above