Suppose Roasted Pepper 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 $0.62 of ingredients, $0.22 of variable overhead (electricity to run the oven), and $0.72 of direct labor for kneading and forming the loaves. Allocating fixed overhead (depreciation on the kitchen equipment and building) based on direct labor, Roasted Pepper assigns $1.05 of fixed overhead per loaf. None of the fixed costs are avoidable. The local bakery would charge $1.80 per loaf. Read the requirements. Roasted Pepper Outsourcing Decision Direct material Direct labor Variable overhead Variable cost per unit Plus: Fixed overhead per unit Cost per unit