Bagels, Inc., produces and sells 20 types of bagels by the dozen. Bagels are priced at $6.00 per dozen (or $0.50 each) and cost $0.20 per unit to produce. The company is considering further processing the bagels into two products: bagels with cream cheese and bagel sandwiches. It would cost an additional $0.50 per unit to produce bagels with cream cheese, and the new selling price would be $2.50 each. It would cost an additional $1.00 per sandwich to produce bagel sandwiches, and the new selling price would be $3.50 each.

Required

1. Identify the relevant per unit costs and revenues for the alternatives. Are there any sunk costs?

2. Based on the information in requirement 1, should Bagels, Inc., expand its product offerings?

3. Suppose that Bagels, Inc., did expand its product line to include bagels with cream cheese and bagel sandwiches. Based on customer feedback, the company determined that it could further process those two products into bagels with cream cheese and fruit and bagel sandwiches with cheese. The company's accountant compiled the following information:

Perform an incremental analysis to determine if Bagels Inc., should process its products further. Explain your findings.

Transcribed Image Text:

Sales Rev Sales Reveu Additional if Sold with No if Processed Processing Product per unit) Bagels with Further Processing Further Costs $2.50 $3.50 S3.50 S4.50 cream cheese Fruit: S1.00 Cheese: SO.50 Bagel sandwiches