Suppose Fine Cuisine 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, $0.26 of variable overhead (electricity to run the oven), and $0.77 of direct labor for kneading and forming the loaves. Allocating fixed overhead (depreciation on the kitchen equipment and building) based on direct labor, Fine Cuisine assigns $0.96 of fixed overhead per loaf. None of the fixed costs are avoidable. The local bakery would charge $1.78 per loaf. 1. What is the full product unit cost of making the bread in-house? 2. Should Fine Cuisine bake the bread in-house or buy from the local bakery? Why? 3. In addition to the financial analysis, what else should Fine Cuisine consider when making this decision? Requirements 1. What is the unit cost of making the bread in-house? Complete the following outsourcing decision analysis to determine Fine Cuisine's unit cost of making the bread. Requirements 1. What is the unit cost of making the bread in-house? Complete the following outsourcing decision analysis to determine Fine Cuisine's unit cost of making the bread. Fine Cuisine Outsourcing Decision Direct material Direct labor 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? Requirement 3. In addition to the financial analysis, what else should Bourbon House consider when making this decision?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Suppose Fine Cuisine 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, $0.26 of variable overhead (electricity to run the oven), and $0.77 of direct labor for kneading and forming the loaves. Allocating fixed overhead (depreciation on the kitchen equipment and building) based on direct labor, Fine Cuisine assigns $0.96 of fixed overhead per loaf. None of the fixed costs are avoidable. The local bakery would charge $1.78 per loaf.

1.	What is the full product unit cost of making the bread in-house?
2.	Should Fine Cuisine bake the bread in-house or buy from the local bakery? Why?
3.	In addition to the financial analysis, what else should Fine Cuisine consider when making this decision?

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

Complete the following outsourcing decision analysis to determine

Fine Cuisine's unit cost of making the bread.

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

Complete the following outsourcing decision analysis to determine

Fine Cuisine's

unit cost of making the bread.

Fine Cuisine Outsourcing Decision
Direct material
Direct labor
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?

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

Bourbon House

consider when making this decision?

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