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Suppose Pasta 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, $0.25 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, Pasta assigns $0.99 of fixed overhead per loaf. None of the fixe 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 Pasta's unit cost of making the bread. Requirements Pasta Outsourcing Decision Direct material 1. What is the full product unit cost of making the bread in-house? 2. Should Pasta bake the bread in-house or buy from the local bakery? Why? 3. In addition to the financial analysis, what else should Pasta consider when making this decision? Direct labor Variable overhead Variable cost per unit Plus: Fixed overhead per unit Print Done Cost per unit Requirement 2. Should Pasta bake the bread in-house or buy from the local bakery? Why? Decision: v since the of making each loaf is the cost of outsourcing each loaf. Requirement 3. In addition to the financial analysis, what else should Pasta consider when making this decision? Pasta should consider the following qualitative factors before making a final decision: O A. How does the quality and freshness of the local bakery bread compare to Pasta bread? OB. Will the local bakery meet their delivery time requirements

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