Cost Data for Managerial Purposes Coffee & Cream, Inc., operates a small coffee shop in the downtown area. Profits have been declining in the past, and the management is planning to expand and add ice cream to the menu. The annual ice cream sales are expected to increase revenue by $20,000. The cost of purchasing ice cream from the manufacturer is $10,000. The coffee shop and the ice cream shop will be supervised by the present manager. However, due to expansion, the labor costs and utilities would increase by 50 percent and other costs by 20 percent.

Required:

a. Identify the costs that are different for the decision to open the ice cream shop.

b. Should the management open the ice cream shop?

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COFFEE & CREAM, INC. Annual Income Statement Before Expansion Sales revenue Costs: Food Labor Utilities Rent $35,000 15,000 8,000 2,000 4,000 Other costs Supervisor's salary Total costs 2,000 6,000 37,000 Operating pofit (loss) $ (2,000)