Lucky Restaurant makes and sells a variety of soups. It also makes and sells whole-grain bread. It anticipates the following financial performance for its bread business during the month of May.

	Total	Per Loaf
Capacity (in loaves)	25,000
Production & Sales (in loaves)	22,000
Revenue	$220,000`	$10.00
Variable production costs	68,200	3.1
Variable selling & admin. costs	33,000	1.5
Fixed production overhead	38,000	1.4
Fixed selling & admin. costs	6,600	0.3
Operating Income	$81,400	$3.70

Lucky's management expects its selling price, variable cost per unit, and total fixed cost to remain the same for next year.

Required:

Question 1:

Lucky received a special order for 4,000 loaves of bread. The loaves are identical to the loaves it currently produces. However, because the order is a special order, it will not need to pay the $0.20 per loaf commission to its sales force. Compute the minimum price per loaf that it should charge for the special order.

Question 2:

Management is considering whether to outsource the production of bread for the months of June and July so that its baker can take a two-month vacation. It believes that outsourcing will not affect bread sales and that bread sales will be the normal 22,000 loaves per month for June and July.

Management has gathered the following information about outsourcing:

• Whole Earth Breads will sell the bread to Lucky for $2.00 per loaf
• If bread production is outsourced, Lucky will be able to save a total of $8,800 in fixed costs($4,400 in June and $4,400 in July)

Compute the most Lucky should be willing to pay per loaf to purchase the break from Whole Earth Breads.