Suppose Roasted Pepper 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...

Suppose

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

of​ ingredients,

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

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

assigns

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

per loaf.

Read the

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

Complete the following outsourcing decision analysis to determine

unit cost of making the bread.

Requirement 2. Should

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

​Decision:

since the

of making each loaf is

the cost of outsourcing each loaf.

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

consider when making this​ decision?

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