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.