Suppose an Olive Terrace 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 $0.52 of ingredients, $0.25 of variable overhead (electricity to run the oven), and $0.71 of direct labor for kneading and forming the loaves. Allocating fixed overhead (depreclation on the kitchen equipment and bullding) based on direct labor assigns $0.99 of fixed overhead per loat. None of the fixed costs are avoidable. The local bakery would charge Olive Terrace $1.80 per loat 1. What is the absorption cost of making the bread in-house? What is the variable cost per loar? 2. Should Olive Terrace bake the bread in-house or bury from the lacal bakery? Why? 3. In addition to the financial analysis, what else should Olive Terrace 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 Terrace Outsourcing Decision (Absorption Costing) Variable cost per loaf Full (absorption) cost per loar