Question
Suppose Country Cafe 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 $ 0.52 of ingredients, $ 0.23 of variable overhead (electricity to run the oven), and $ 0.78 of direct labor for kneading and forming the loaves. Allocating fixed overhead (depreciation on the kitchen equipment and building) based on direct labor, Country Cafe assigns $ 1.04 of fixed overhead per loaf. None of the fixed costs are avoidable. The local bakery would charge $ 1.74 per loaf.
- What is the absorption cost of making the bread
- What is the variable cost
- Should Country make the bread or buy
- What other factors should be considered
Answer
- Absorption costing cost per unit= $2.57
- Variable costing cost per unit=1.53
- It will be cheaper for Country Cafe to produce internally than to buy from outside as it will save $0.21 per unit of bread
- See explanation for other factors
Explanation:
Absorption cost= Direct cost + Variable overhead + Fixed overhead
= 0.52 + 0.23+ 0.78 + 1.04
= $2.57
Variable cost of making the loaf= Direct cost + Variable overhead
=0.52 + 0.23+ 0.78 = $1.53
$
Variable cost of making 1.53
External purchase price <u>1.74</u>
Extra cost of external purchase per unit <u>0.21
</u>
It will be cheaper for Country Cafe to produce internally that to buy from outside as it will save $0.21 per unit of bread
Non-Financial factors
Product Quality. Country Cafe needs to be sure that the quality of bread to be provided wont be undermined. should it decides to buy.
Trade secret: is there a guarantee that the contractor would not divulge or abuse the privileged information about the ingredients to be mixed and some other trade secrets
Delivery : Reliable and timely delivery are very important. Would the external supplier be able to meet expectations?
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Answer:
A. real property
Explanation:
These are known as real property. Like mentioned in the question, this is land and all of the property attached to it, this includes any and all subsets of land that have been improved through any form of legal human actions. There are many things that are included in a piece of land that can be considered real property such as buildings, ponds, canals, roads, and machinery, among other things.
Answer:
a) see attached graph
b) slope = -1/2 = -0.5
c) slope = -1/3 = -.033
d) trading with Kwame (green line)
e) you should trade with Kwame since you can obtain more fish (up to 60 in total)
Answer:
(a) Multiple-step income statement.
Sales revenue $388,710
Less Sales returns and allowances ($12,620)
Net Sales $376,090
Less Cost of Goods Sold ($215,090)
Gross Profit $161,000
Less Operating Expenses :
<em>Selling and Distribution Expenses :</em>
Freight-out $6,220
Sales discounts $7,240 ($13,460)
<em>Administration Expenses :</em>
Rent expense $31,270
Salaries and wages expense $56,180 ($87,450)
Operating Income / (Loss) $60,090
Explanation:
A multiple-step income statement, shows separately Income derived from Primary Activities of the Company (Operating Income) and the Income that includes Secondary Activities of the Company (Net Income).
Operating Expenses are further categorized under <em>Selling and Distribution Expenses </em>and<em> Administration Expenses.</em>
