Belair Bistro specializes in baking croissants. Currently, their oven is capable of baking 100 croissants per hour. The variable costs of producing one croissant are 25 cents, and the croissants are sold for 55 cents each.

After tasting Belair Bistro's croissants, the management of Le Louvre - a nationwide French restaurant chain - has approached Belair Bistro with an offer to supply bakery items for Le Louvre's business operations. Specifically, Le Louvre has asked for the supply of customized chocolate croissants that they plan to offer in their breakfast menu. Le Louvre is willing to pay $3.30 per croissant. The unit variable cost to bake the chocolate croissant will be $2.64. In addition, Belair Bistro would have to incur a cost of $22,000 to purchase devices to process high-quality chocolate which is a key ingredient of the requested chocolate croissants. These devices would have no other uses besides for baking the chocolate croissants. The chocolate croissants will be baked in the same ovens used for baking Belair Bistro's other croissants, but the oven can bake only 40 chocolate croissants per hour, because chocolate croissants require more attention and each chocolate croissant takes up more space in the oven than regular croissants. Le Louvre wants 100,000 chocolate croissants. Assume that Belair Bistro has 10,000 machine hours available during the period in which Le Louvre requires delivery of the chocolate croissants. Belair Bistro's fixed costs excluding the $22,000 for the baking device for chocolate croissants would not be affected by accepting Le Louvre's offer.

In answering the following questions,assume the company's main objective is to maximize itsfinancial operating income during the relevant period.

Required:

1. Suppose that demand for croissants during the relevant period is 750,000 units, and Le Louvre's offer must be taken in full or rejected (i.e. either supply Le Louvre with all 100,000 chocolate croissants or none). Should Belair Bistro accept the offer by Le Louvre? Support your answer by explaining the impact on operating income.
2. Suppose that demand for croissants during the relevant period is 850,000 units, and Le Louvre's offer must be taken in full or rejected (i.e. either supply Le Louvre with all 100,000 chocolate croissants or none). Should Belair Bistro accept the offer by Le Louvre? Support your answer by explaining the impact on operating income.
3. Suppose that demand for croissants during the relevant period is 850,000 units, and Belair Bistro can supply Le Louvre with any quantity of chocolate croissants up to 100,000 chocolate croissants. How many croissants and how many chocolate croissants should it bake? Support your answer by explaining the impact on operating income.
4. Belair Bistro has found a firm that would be willing to bake chocolate croissants in any quantity for them. This would allow Belair Bistro to outsource the production of chocolate croissants supplied to Le Louvre. The firm would charge Belair Bistro $3.08 per unit, using the firm's own baking equipment. Suppose that demand for Belair Bistro's croissants during the relevant period is 900,000 units, and Belair Bistro can supply Le Louvre with any quantity of chocolate croissants up to 100,000 chocolate croissants. Answer the following questions by supporting your answer based on the impact on operating income:

• How many croissants and how many chocolate croissants should Belair Bistro bake?
• How many chocolate croissants should be outsourced?
• What are some additionalqualitativefactors that may impact your decision?