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Suppose a Fine Cuisine restaurant is considering whether to (1) bake bread for its restaurant in-house or (2) buy the bread from a local bakery.
Suppose a Fine Cuisine 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 $0.54 of ingredients, $0.28 of variable overhead (electricity to run the oven), and $0.70 of direct labor for kneading and forming the loaves. Allocating fixed overhead (depreciation on the kitchen equipment and building) based on direct labor assigns $0.97 of fixed overhead per loaf. None of the fixed costs are avoidable. The local bakery would charge $1.80 per loaf. Requirements 1. What is the unit cost of making the bread in-house? Complete the following outsourcing decision analysis to determine Fine Cuisine's unit cost of making the bread
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