Suppose an Olive Yard restaurant is considering whether to (1) bake bread for its restaurant in house (2) buy the bread from a local bakery. The chef estimates that variable costs of making each loaf include $0.52 of ingredients, $0 24 of variable overhead (electricity to run the oven), and S0.75 of direct labor for kneading and forming the loaves. Allocating fixed overhead (depreciation on the kitchen equipment and building) based on direct labor assigns 50 95 of foed overhead per loal None of the fixed costs are avoidable. The local bakery would charge Olive Yard $1.78 per loaf 1. What is the absorption cost of making the bread in-house? What is the variable cost per loal? 2. Should Olive Yard bake the bread in-house or buy from the local bakery? Why? 3. In addition to the financial analysis, what else should Olive Yard consider when making this decision? 1. What is the absorption cost of making the bread in-house? What is the variable cost per loal? Olive Yard Outsourcing Decision (Absorption Costing) Variable overhead Direct labor Direct material Variable cost per loaf Fixed overhead per loaf Full (absorption) cost per loaf