Suppose Italian Eatery 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 $$0\mathrm{.}46$ of ingredients, $$0\mathrm{.}23$ of variable overhead $($electricity to run the oven$),$ and $$0\mathrm{.}75$ of direct labor for kneading and forming the loaves. Allocating fixed overhead $($depreciation on the kitchen equipment and building$)$ based on direct labor, Italian Eatery assigns $$0\mathrm{.}95$ of fixed overhead per loaf. None of the fixed costs are avoidable. The local bakery would charge $$1\mathrm{.}82$ per loaf.

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