Question 17 The Farm House restaurant makes their own bread to serve in their restaurant. They have been approached by a local bakery offering to make the bread for them. The restaurant has two choices: 1) continue making the bread in-house, or 2) buy it from the local bakery. The Farm House head chef estimated the variable cost of making each loaf of bread to include the following: Sales prices and variable costs are as follows: $0.64 of ingredients, $0.25 of variable overhead, and direct labor costs to knead and form the loaves of $0.75. Allocating fixed overhead is based on direct labor. The Farm House assigns a fixed overhead cost of $1.08 per loaf. None of the fixed costs are avoidable. The local bakery would charge $1.52 per loaf. 1. What is the full product unit cost of making bread in-house? The Farm House Direct Materials Direct Labor Variable manufacturing overhead Fixed manufacturing overhead Cost per loaf of bread 2. Should the restaurant bake the bread in-house or buy from the local bakery? (Use zero if there is no value). Bread Costs Variable Costs: Direct Materials Direct Labor Variable manufacturing overhead Purchase cost Total differential cost per loaf Make Outsource Difference (Make - Outsource) 3. What would you recommend? Select an answer