Suppose

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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\mathrm{.}52$$$0\mathrm{.}52$

of$$ ingredients,

$ $0\mathrm{.}27$$$0\mathrm{.}27$

of variable overhead$($electricity to run the$$ oven$),$ and

$ $0\mathrm{.}79$$$0\mathrm{.}79$

of direct labor for kneading and forming the loaves. Allocating fixed overhead$($depreciation on the kitchen equipment and$$ building$)$ based on direct$$ labor,

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assigns

$ $0\mathrm{.}96$$$0\mathrm{.}96$

of fixed overhead per loaf. None of the fixed costs are avoidable. The local bakery would charge

$ $1\mathrm{.}78$$$1\mathrm{.}78$

per loaf.

Read the

requirements

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$.$

Question content area bottom

Part $1$

Requirements $1.$ What is the unit cost of making the bread$$ in$-$house?

Complete the following outsourcing decision analysis to determine

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unit cost of making the bread.

$$

Roasted Pepper

Outsourcing Decision

Direct material

$$

Direct labor

$$

Variable overhead

$$

Variable cost per unit

$$

Plus: Fixed overhead per unit

$$

Cost per unit

$$

Part $2$

Requirement $2.$ Should

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bake the bread$$ in$-$house or buy from the local$$ bakery? Why?

$$Decision:

$$

$$

Roasted Pepper should bake the bread in$-$house

Roasted Pepper should buy the bread from the local bakery

since the

$$

$$

fixed cost

full cost

variable cost

of making each loaf is

$$

$$

greater than

less than

the cost of outsourcing each loaf.

Part $3$

Requirement $3.$ In addition to the financial$$ analysis, what else should

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consider when making this$$ decision?

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should consider the following qualitative factors before making a final$$ decision:

$$

A$.$

How does the quality and freshness of the local bakery bread compare to

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$$bread$?$

B$.$

Will the local bakery meet their delivery time$$ requirements?

C$.$

Both A and B

D$.$

None of the above