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 $0.50 of ingredients, $0.22 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, Roasted Pepper assigns $1.05 of fixed overhead per loaf. None of the fixed costs are avoidable. The local bakery would charge $1.72 per loaf. Read the requirements1. Requirements 1. What is the unit cost of making the bread in-house? Complete the following outsourcing decision analysis to determine Roasted Pepper's unit cost of making the bread. Roasted Pepper Outsourcing Decision Direct material Direct labor Variable overhead Variable cost per unit Plus: Fixed overhead per unit Cost per unit Requirement 2. Should Roasted Pepper bake the bread in-house or buy from the local bakery? Why? Decision: (1) since the (2) of making each loaf is (3) the cost of outsourcing each loaf. Requirement 3. In addition to the financial analysis, what else should Roasted Pepper consider when making this decision? Roasted Pepper should consider the following qualitative factors before making a final decision: A. How does the quality and freshness of the local bakery bread compare to Roasted Pepper bread? B. Will the local bakery meet their delivery time requirements? C. Both A and B D. None of the above 1: 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? (1) Roasted Pepper should bake the bread in-house Roasted Pepper should buy the bread from the local bakery (2) fixed cost full cost variable cost (3) greater than less than

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 $0.50 of ingredients, $0.22 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, Roasted Pepper assigns $1.05 of fixed overhead per loaf. None of the fixed costs are avoidable. The local bakery would charge $1.72 per loaf. Read the requirements1. Requirements 1. What is the unit cost of making the bread in-house? Complete the following outsourcing decision analysis to determine Roasted Pepper's unit cost of making the bread. Roasted Pepper Outsourcing Decision Direct material Direct labor Variable overhead Variable cost per unit Plus: Fixed overhead per unit Cost per unit Requirement 2. Should Roasted Pepper bake the bread in-house or buy from the local bakery? Why? Decision: (1) since the (2) of making each loaf is (3) the cost of outsourcing each loaf. Requirement 3. In addition to the financial analysis, what else should Roasted Pepper consider when making this decision? Roasted Pepper should consider the following qualitative factors before making a final decision: A. How does the quality and freshness of the local bakery bread compare to Roasted Pepper bread? B. Will the local bakery meet their delivery time requirements? C. Both A and B D. None of the above 1: 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? (1) Roasted Pepper should bake the bread in-house Roasted Pepper should buy the bread from the local bakery (2) fixed cost full cost variable cost (3) greater than less than

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter2: Basic Cost Management Concepts

Section: Chapter Questions

Problem 5CE: Jean and Tom Perritz own and manage Happy Home Helpers, Inc. (HHH), a house-cleaning service. Each...

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Question

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

$0.50

of ingredients,

$0.22

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,

Roasted Pepper

assigns

$1.05

of fixed overhead per loaf. None of the fixed costs are avoidable. The local bakery would charge

$1.72

per loaf.

Read the

requirements1.

Requirements 1. What is the unit cost of making the bread in-house?

Complete the following outsourcing decision analysis to determine

Roasted Pepper's

unit cost of making the bread.

Roasted Pepper
Outsourcing Decision
Direct material
Direct labor
Variable overhead
Variable cost per unit
Plus: Fixed overhead per unit
Cost per unit

Requirement 2. Should

Roasted Pepper

bake the bread in-house or buy from the local bakery? Why?

Decision:

(1)

since the

(2)

of making each loaf is

(3)

the cost of outsourcing each loaf.

Requirement 3. In addition to the financial analysis, what else should

Roasted Pepper

consider when making this decision?

Roasted Pepper

should consider the following qualitative factors before making a final decision:

How does the quality and freshness of the local bakery bread compare to

Roasted Pepper

bread?

Will the local bakery meet their delivery time requirements?

Both A and B

None of the above

1: 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?

(1)

Roasted Pepper should bake the bread in-house

Roasted Pepper should buy the bread from the local bakery

(2)

fixed cost

full cost

variable cost

(3)

greater than

less than

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