ACME Packaged Foods Co. has a fully equipped kitchen that it uses to prepare the packaged products it sells nationally. A local subcontractor has offered to prepare all these products at ACME's current volume for a total cost of $25,000 per month for the coming year. There will be no quality or delivery concerns since the subcontractor has an excellent reputation and so ACME's revenue from selling the packaged foods will remain the same one way or another. You are a close friend of ACME's owner. At dinner one day, he lets you know about the offer from the subcontractor. Showing you the monthly cost of operating his own kitchen, as prepared by his accountant below, he says "It is obviously cheaper for me to keep making the packaged foods myself." Food supplies Skilled chef Assistants (two) Depreciation on kitchen Insurance on kitchen Utilities $7,000 5,000 4,000 5,000 500 1,000 22,500 You tell the owner that the accountant's number, while appropriate for preparing the current income statement, is not the right one to use in evaluating if it is cheaper to subcontract. Your friend says, "Why don't you tell me whether to subcontract or not." On questioning your friend a little more, you discover the following additional facts: The kitchen can be rented out for $7,000 per month with the tenant taking on the responsibility for utilities but not insurance (the kitchen must be insured at all times). Frame the choices as: There is also a local market for gourmet take-out food that your friend has been thinking of tapping for some time. The gourmet market can be serviced from the current kitchen only if the packaged foods are subcontracted, but the same chef could be employed at his existing salary. One less assistant would be needed. However, a cashier would be needed at a monthly salary of $3,000. The cost of food supplies for the gourmet. market would be $10,000 a month. Utilities would be unchanged. The expected revenue from the gourmet market is $30,000 a month. REQUIRED: Describing the choices as follows, identify the things that are irrelevant to the analysis, and then present your analysis. Make packaged foods (A) Alternatively, frame the choices "naturally" as: Subcontract preparation of packaged foods & rent out kitchen (B) Subcontract preparation of packaged foods & use kitchen for gourmet foods (C) Make packaged foods Subcontract preparation of packaged foods