Question

A restaurant bakes its own bread for a cost of $165 per unit (100 loaves), including fixed costs of $41 per unit. A proposal is offered to purchase bread from an outside source for $110 per unit, plus $18 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

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.

Differential Analysis

Make Bread (Alternative 1) or Buy Bread (Alternative 2)

August 16

1		Make Bread	Buy Bread	Differential Effect on Income
2		(Alternative 1)	(Alternative 2)	(Alternative 2)
3	Unit costs:
4
5
6
7
8

Determine whether the company should make (Alternative 1) or buy (Alternative 2) the bread.

Make the bread

Buy the bread

The restaurant is indifferent since the result is the same regardless of which alternative is chosen.

Answer 1