Suppose a Roasted Olive restaurant is considering whether to (1) bake bread for its restaurant...
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Accounting
Suppose a Roasted Olive 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 $.52 of ingredients, $.24 of variable overhead (electricity to run the oven), and $.70 of direct labor for kneading and forming the loaves. Allocating fixed overhead (depreciation on the kitchen equipment and building) based on direct labor assigns $.96 of fixed overhead per loaf. None of the fixed costs are avoidable. The local bakery would charge $1.75 per loaf.
What is the unit cost of making the bread in-house (use absorption costing)?
Should Roasted Olive bake the bread in-house or buy from the local bakery? Why?
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