Suppose an Olive Avenue 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, $0.24 of variable overhead (electricity to run the oven), and $0.73 of direct labor for kneading and forming the loaves. Allocating fixed overhead (depreciation on the kitchen equipment and building) based on direct labor assigns $1.04 of fixed overhead per loaf. None of the fixed costs are avoidable. The local bakery would charge Olive Avenue $1.74 per loaf. 1. What is the absorption cost of making the bread in-house? What is the variable cost per loaf? 2. Should Olive Avenue bake the bread in-house or buy from the local bakery? Why? 3. In addition to the financial analysis, what else should Olive Avenue consider when making this decision? 1. What is the absorption cost of making the bread in-house? What is the variable cost per loaf? Olive Avenue Outsourcing Decision (Absorption Costing) Variable cost per loaf Full (absorption) cost per loaf 2. Should Olive Avenue bake the bread in-house or buy from the local bakery? Why? Decision: since the loat the cost of outsourcing each 3. In addition to the financial analysis, what else should Olive Avenue consider when making this decision? Olive Avenue should consider the following qualitative factors before making a final decision OA. How does the quality and freshness of the local bakery bread compare to Olive Avenue bread? OB. If labor and oven time were not devoted to breadmaking, could another more profitable product be made in its place? OC ww the local bakery meet their delivery time requirements? OD. All of the above OE. None of the above