Make or BuyA restaurant bakes its own bread for a cost of $156 per unit (100 loaves), including fixed costs of $35 per unit. A proposal is offered topurchase bread from an outside source for $101 per unit, plus $12 per unit for delivery.Prepare a differential analysis dated July 7 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the bread,assuming that fixed costs are unaffected by the decision. If an amount is zero, enter "O". For those boxes in which you must entersubtracted or negative numbers use a minus signDifferential AnalysisMake Bread (Alt. 1) or Buy Bread (Alt. 2)July 7Differential EffectMake Bread(Alternative 1) (Alternative 2)Buy Breadon Income(Alternative 2)Sales price$0$0$0Unit Costs:101 X101 XPurchase price012 X12DeliveryXVariable costs12112135 X35 X0Fixed factory overhead156 X148Income (Loss)XX

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Asked Dec 2, 2019
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Make or Buy
A restaurant bakes its own bread for a cost of $156 per unit (100 loaves), including fixed costs of $35 per unit. A proposal is offered to
purchase bread from an outside source for $101 per unit, plus $12 per unit for delivery.
Prepare a differential analysis dated July 7 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the bread,
assuming that fixed costs are unaffected by the decision. If an amount is zero, enter "O". For those boxes in which you must enter
subtracted or negative numbers use a minus sign
Differential Analysis
Make Bread (Alt. 1) or Buy Bread (Alt. 2)
July 7
Differential Effect
Make Bread
(Alternative 1) (Alternative 2)
Buy Bread
on Income
(Alternative 2)
Sales price
$0
$0
$0
Unit Costs:
101 X
101 X
Purchase price
0
12 X
12
Delivery
X
Variable costs
121
121
35 X
35 X
0
Fixed factory overhead
156 X
148
Income (Loss)
X
X
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Make or Buy A restaurant bakes its own bread for a cost of $156 per unit (100 loaves), including fixed costs of $35 per unit. A proposal is offered to purchase bread from an outside source for $101 per unit, plus $12 per unit for delivery. Prepare a differential analysis dated July 7 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the bread, assuming that fixed costs are unaffected by the decision. If an amount is zero, enter "O". For those boxes in which you must enter subtracted or negative numbers use a minus sign Differential Analysis Make Bread (Alt. 1) or Buy Bread (Alt. 2) July 7 Differential Effect Make Bread (Alternative 1) (Alternative 2) Buy Bread on Income (Alternative 2) Sales price $0 $0 $0 Unit Costs: 101 X 101 X Purchase price 0 12 X 12 Delivery X Variable costs 121 121 35 X 35 X 0 Fixed factory overhead 156 X 148 Income (Loss) X X

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Expert Answer

Step 1

Make or Buy decision: The analysis of difference in manufacturing cost or to purchase the product is evaluated in make or buy decisions by considering relevant cost for each alternative. It is used to save cost and to increase profit. Fixed cost is irrelevant for evaluation of differential income for make or buy decision as it is fixed in nature either of both alternatives. However, manufacturing fixed overhead cost is relevant cost for evaluation of make or buy decision.

Step 2

Prepare differential analysis date July 7 for determining the company to make or buy the bread as shown below:

 

The variable cost is relevant cost for evaluation, as fixed cost is irrele...

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C D E F Differential analysis Make bread (Alt 1) or Buy Bread (Alt 2) 4 Jul-07 Differential effect on Buy Bread (Alternative 1) (Alternative 2) Make Bread 6 Particulars Income 7 Sales price 8 Unit costs: Purchase price 0 113 9 0 -113 10 Delivery 0 0 156 11 Variable costs 156 0 12 Fixed factory overhead Income (Loss) 0 0 0 -156 13 -113 -43

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