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 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 1. What is the full product unit cost of making the bread in-house? 2. Should Roasted Pepper bake the bread in-house or buy from the local bakery? Why? 3. In addition to the financial analysis, what else should Roasted Pepper consider when making this decision?
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 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 1. What is the full product unit cost of making the bread in-house? 2. Should Roasted Pepper bake the bread in-house or buy from the local bakery? Why? 3. In addition to the financial analysis, what else should Roasted Pepper consider when making this decision?
Solution Summary: The author explains how to calculate the cost per loaf of Bread. They state whether Company R must bake the Bread in-house or buy from the local bakery.
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 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
1. What is the full product unit cost of making the bread in-house?
2. Should Roasted Pepper bake the bread in-house or buy from the local bakery? Why?
3. In addition to the financial analysis, what else should Roasted Pepper consider when making this decision?
Definition Video Definition Accounting method wherein the cost of a tangible asset is spread over the asset's useful life. Depreciation usually denotes how much of the asset's value has been used up and is usually considered an operating expense. Depreciation occurs through normal wear and tear, obsolescence, accidents, etc. Video
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