Suppose FineCuisine restaurant is considering whether to(1) bake bread for its restaurantin-house or(2) buy the bread from a local bakery. The chef estimates that variable costs of making each loaf include $0.48 ofingredients, $0.25 of variable overhead(electricity to run theoven), and $0.72 of direct labor for kneading and forming the loaves. Allocating fixed overhead(depreciation on the kitchen equipment andbuilding) based on directlabor, FineCuisine assigns $0.96 of fixed overhead per loaf. None of the fixed costs are avoidable. The local bakery would charge $1.80 per loaf.

1. What is the full product unit cost of making the breadin-house?

Complete the following outsourcing decision analysis to determine FineCuisine's unit cost of making the bread.

Direct material ________

Direct Labor _______

Variable overhead _____

Variable cost per unit ______

Plus: Fixed overhead per unit ______

Cost per unit

2. Should FineCuisine bake the breadin-house or buy from the localbakery? Why?

3. In addition to the financialanalysis, what else should FineCuisine consider when making thisdecision?