Suppose Bourbon House 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 $0.58 of ingredients, $0.24 of variable overhead (electricity to run the oven), and $0.71 of direct labor for kneading and forming the loaves. Allocating fixed overhead (depreciation on the kitchen equipment and building) based on direct labor, Bourbon House assigns $0.95 of fixed overhead per loaf. None of the fixed costs are avoidable. The local bakery would charge $1.80 per loaf. Read the requirements. Requirements 1. What is the unit cost of making the bread in-house? Complete the following outsourcing decision analysis to determine Bourbon House's unit cost of making the bread. Direct material Direct labor Bourbon House Outsourcing Decision Variable overhead Variable cost per unit Plus: Fixed overhead per unit Cost per unit Requirement 2. Should Bourbon House bake the bread in-house or buy from the local bakery? Why? Decision: since the of making each loaf is Requirement 3. In addition to the financial analysis, what else should Bourbon House consider when making this decision? Bourbon House 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 Bourbon House bread? B. Will the local bakery meet their delivery time requirements? C. Both A and B D. None of the above the cost of outsourcing each loaf.
Suppose Bourbon House 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 $0.58 of ingredients, $0.24 of variable overhead (electricity to run the oven), and $0.71 of direct labor for kneading and forming the loaves. Allocating fixed overhead (depreciation on the kitchen equipment and building) based on direct labor, Bourbon House assigns $0.95 of fixed overhead per loaf. None of the fixed costs are avoidable. The local bakery would charge $1.80 per loaf. Read the requirements. Requirements 1. What is the unit cost of making the bread in-house? Complete the following outsourcing decision analysis to determine Bourbon House's unit cost of making the bread. Direct material Direct labor Bourbon House Outsourcing Decision Variable overhead Variable cost per unit Plus: Fixed overhead per unit Cost per unit Requirement 2. Should Bourbon House bake the bread in-house or buy from the local bakery? Why? Decision: since the of making each loaf is Requirement 3. In addition to the financial analysis, what else should Bourbon House consider when making this decision? Bourbon House 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 Bourbon House bread? B. Will the local bakery meet their delivery time requirements? C. Both A and B D. None of the above the cost of outsourcing each loaf.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Suppose Bourbon House 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 $0.58 of ingredients, $0.24 of variable overhead (electricity to run the oven), and $0.71 of direct labor for kneading and forming the loaves. Allocating fixed overhead (depreciation on the kitchen
equipment and building) based on direct labor, Bourbon House assigns $0.95 of fixed overhead per loaf. None of the fixed costs are avoidable. The local bakery would charge $1.80 per loaf.
Read the requirements.
Requirements 1. What is the unit cost of making the bread in-house?
Complete the following outsourcing decision analysis to determine Bourbon House's unit cost of making the bread.
Direct material
Direct labor
Bourbon House
Outsourcing Decision
Variable overhead
Variable cost per unit
Plus: Fixed overhead per unit
Cost per unit
Requirement 2. Should Bourbon House bake the bread in-house or buy from the local bakery? Why?
Decision:
since the
of making each loaf is
Requirement 3. In addition to the financial analysis, what else should Bourbon House consider when making this decision?
Bourbon House should consider the following qualitative factors before making a final decision:
OA. How does the quality and freshness of the local bakery bread compare to Bourbon House bread?
B. Will the local bakery meet their delivery time requirements?
OC. Both A and B
D. None of the above
the cost of outsourcing each loaf.
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