timates that variable costs of making each loaf include $0.48 of ingredients, $0.24 of variable overhead (electricity to run t eading and forming the loaves. Allocating fixed overhead (depreciation on the kitchen equipment and building) based on erhead per loaf. None of the fixed costs are avoidable. The local bakery would charge Olive Terrace $1.75 per loaf. Instructor tip To find the "absorption cost" per loaf, add the fixed cost per loaf to the variable cost per loaf. Suppose an Olive Terrace 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 $0.48 of ingredients, $0.24 of variable overhead (electricity to run the oven), and $0.76 of direct labor for kneading and forming the loaves. Allocating fxed overhead (depreciation on the kitchen equipment and building) based on direct labor assigns $1.04 of foed overhead per loaf. None of the fixed costs are avoidable. The local bakery would charge Olive Terrace $1.75 per loaf. 1. What is the absorption cost of making the bread in-house? What is the variable cost per loa?? 2. Should Olive Terrace bake the bread in-house or buy from the local bakery? Why? 3. In addition to the financial analysis, what else should Olive Terrace consider when making this decision? 1. What is the absorption cost of making the bread in-house? What is the variable cost per loar