Kostco a sourdough bread manufacturer has approached olde

Reference no: EM13579992

Olde Charm Bakery makes sandwiches, pastries, cakes, and cookies. Currently it makes its own sourdough bread at a total unit cost of $1.72:

Direct materials $0.78

Direct labor 0.48

Variable OH 0.26

Fixed OH 0.20

Total unit cost $1.72

On average, Olde Charm Bakery needs 1,000 loaves of sourdough dough bread every month.

Kostco, a sourdough bread manufacturer, has approached Olde Charm Bakery with a proposal to provide all the bread that Olde Charm Bakery needs at a unit price of $1.50.

Should Olde Charm Bakery continue to make its own sourdough bread or should it buy it from Kostco? Assume 3/4 of the fixed OH is avoidable.

Reference no: EM13579992

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