Question

Make or Buy

A restaurant bakes its own bread for a cost of $168 per unit (100 loaves), including fixed costs of $37 per unit. A proposal is offered to purchase bread from an outside source for $98 per unit, plus $7 per unit for delivery.

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. If an amount is zero, enter zero "0".

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)
Selling Price	$0	$0	$0
Unit Costs:
Purchase price	$	$	$
Delivery
Variable costs
Fixed factory overhead
Income (Loss)	$	$	$

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

Answer 1

Differential Analysis
	Make Bread	Buy Bread	Differential Effect on net Income
Unit Cost
Variable Cost($168-37)	-131.00		131.00
Fixed Factory Overhead	-37.00	-37.00	-
Purchase Price		-98.00	-98.00
Delivery		-7.00	-7.00
Income /Loss	-168.00	-142.00	26.00

2. The company Incurr less cost , if it will but product as compare with make the product.Hence it's recommended to Buy Bread