Problem #8: Using Relevant Revenue and Costs to Make Decisions

Sandwiches Galore is a small shop looking to expand its product offerings. The company is evaluating two alternatives: tacos and soups.

Annual projections for sales of tacos are as follows:

Sales $144,000; variable costs $80,000; fixed costs $16,000.

Annual projections for sales of soups are as follows:

Sales $60,000; variable costs $20,000; no additional fixed costs.

Required:

Perform differential analysis to determine which alternative is more profitable, and by how much. Assume that adding tacos is alternative 1 and adding soups is alternative 2.