Campus Bagels bakes and sells authentic New Yorkstyle kettle-boiled bagels. For the most recent year, Campus Bagels sold 250,000 bagels at a selling price of $1 per bagel. During this same year, Campus Bagels incurred fixed costs of $100,000 and variable costs of $0.40 per bagel.

Management of Campus Bagels is considering extending their product line to include bagel sandwiches. Management estimates that adding bagel sandwiches would increase their total fixed costs by $25,000 per year and that the variable cost per bagel sandwich would be $1.25.

Required:

a. Ignoring the new product line, how does Campus Bagels’ profit increase or decrease with number of bagels sold? Using this model, what was Campus Bagels’ profit for the most recent year?

b. How would adding bagel sandwiches change Campus Bagels’ profit? What information do you need before you can determine how introducing bagel sandwiches would affect Campus Bagels’ overall profit? Is it reasonable to assume Campus Bagels will still sell 250,000 bagels?

c. Assume Campus Bagels believes that, in addition to selling 250,000 bagels in the coming year, it also can sell 25,000 bagel sandwiches. What price should Campus Bagels charge per bagel sandwich if it wishes to increase overall profit by $50,000?

d. Assume Campus Bagels believes that it can sell 25,000 bagel sandwiches but that this will reduce the number of bagels sold by 25,000 to 225,000 (i.e., there is a one-for-one trade-off between bagels and bagel sandwiches). What price should Campus Bagels charge per bagel sandwich if it wishes to increase overall profit by $50,000?