Making outsourcing decisions Suppose Roasted Pepper restaurant is considering whether to (1) bake bread for its restaurant in-house or buy the bread from a local bakery. The chef estimates that variable costs of making each loaf include $0.52 of ingredients, $0.27 of variable overhead (electricity to run the oven), and $0.79 of direct labor for kneading and forming the loaves. Allocating fixed overhead (depreciation on the kitchen equipment and building) based on direct labor, Roasted Pepper assigns $0.96 of fixed overhead per loaf. None of the fixed costs are avoidable. The local bakery would charge $1.78 per loaf. Requirements What is the full product unit cost of making the bread in-house? Should Roasted Pepper bake the bread in-house or buy from the local bakery? Why? In addition to the financial analysis, what else should Roasted Pepper consider when making this decision?
Making outsourcing decisions Suppose Roasted Pepper restaurant is considering whether to (1) bake bread for its restaurant in-house or buy the bread from a local bakery. The chef estimates that variable costs of making each loaf include $0.52 of ingredients, $0.27 of variable overhead (electricity to run the oven), and $0.79 of direct labor for kneading and forming the loaves. Allocating fixed overhead (depreciation on the kitchen equipment and building) based on direct labor, Roasted Pepper assigns $0.96 of fixed overhead per loaf. None of the fixed costs are avoidable. The local bakery would charge $1.78 per loaf. Requirements What is the full product unit cost of making the bread in-house? Should Roasted Pepper bake the bread in-house or buy from the local bakery? Why? In addition to the financial analysis, what else should Roasted Pepper consider when making this decision?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Making outsourcing decisions
Suppose Roasted Pepper restaurant is considering whether to (1) bake bread for its restaurant in-house or buy the bread from a local bakery. The chef estimates that variable costs of making each loaf include $0.52 of ingredients, $0.27 of variable
Requirements
- What is the full product unit cost of making the bread in-house?
- Should Roasted Pepper bake the bread in-house or buy from the local bakery? Why?
- In addition to the financial analysis, what else should Roasted Pepper consider when making this decision?
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