# Make or buy A restaurant bakes its own bread for a cost of $230 per unit (100 loaves), including fixed costs of$47 per unit. A proposal is offered to purchase bread from an outside source for $180 per unit, plus$18 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.

### Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

### Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

#### Solutions

Chapter
Section
Chapter 25, Problem 25.3APE
Textbook Problem

## Make or buyA restaurant bakes its own bread for a cost of $230 per unit (100 loaves), including fixed costs of$47 per unit. A proposal is offered to purchase bread from an outside source for $180 per unit, plus$18 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.

Expert Solution
To determine

Differential Analysis: Differential analysis refers to the analysis of differential revenue that could be gained or differential cost that could be incurred from the available alternative options of business.

### Explanation of Solution

A restaurant has two alternatives to either produce the bread or to purchase the bread. If the restaurant produces the bread it involves a cost of $230, and if the bread is purchased the company involves a cost of$245, as the fixed costs of \$47, remain the same and are unaffected.

Working Note:

Calculate the variable cost involved in the production of the bread...

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