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Suppose Italian Eatery restaurant is considering whether to (1) bake bread for its restaurant in-house...

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Accounting

Suppose Italian Eatery 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 $0.46 of ingredients, $0.23 of variable overhead (electricity to run the oven), and $0.75 of direct labor for kneading and forming the loaves. Allocating fixed overhead (depreciation on the kitchen equipment and building) based on direct labor, Italian Eatery assigns $0.95 of fixed overhead per loaf. None of the fixed costs are avoidable. The local bakery would charge $1.82 per loaf.
Requirements 1. What is the unit cost of making the bread in-house?
Complete the following outsourcing decision analysis to determine Italian Eatery's unit cost of making the bread.
Italian Eatery
Outsourcing Decision
Direct material
Direct labor
Variable overhead
Variable cost per unit
Plus: Fixed overhead per unit
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