A restaurant bakes its own bread for a cost of $165 per unit (100 loaves), inclu

Question

A restaurant bakes its own bread for a cost of $165 per unit (100 loaves), including fixed costs of $46 per unit. A proposal is offered to purchase bread from an outside source for $110 per unit, plus $12 per unit for delivery. Required 1. Prepare a differential analysis dated August 16 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the bread assuming fixed costs are unaffected by the decision. Refer to the list of Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0. A colon (:) will automatically appear if required. 2. Determine whether the company should make (Alternative 1) or buy (Alternative 2) the bread Amount Descriptions Delivery Fixed factory overhead income (loss) Purchase price Variable costs 0 more Check My Work uses remaining Previous Next

Explanation / Answer

1.

Variable costs = $165 - $46 = $119

2. The company should make the bread (Alternative 1).

Differential Analysis Make Bread (Alt. 1) or Buy Bread (Alt. 2) August 16 Make Bread
(Alternative 1) Buy Bread
(Alternative 2) Differential Effect on Income
(Alternative 2) Unit costs: Purchase price 0 -110 -110 Delivery 0 -12 -12 Variable costs -119 0 119 Fixed factory overhead -46 -46 0 Income (Loss) -165 -168 -3

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