Sell-or-Process-Further Decision

Bakers Bagels, Inc., produces and sells 20 types of bagels by the dozen. Bagels are priced at $6.00 per dozen (or $0.50 each) and cost $0.20 per unit to produce. The company is considering processing the bagels further into two products: bagels with cream cheese and bagel sandwiches. It would cost an additional $0.50 per unit to produce bagels with cream cheese, and the new selling price would be $2.50 each. It would cost an additional $1.00 per sandwich to produce bagel sandwiches, and the new selling price would be $3.50 each.

1. Identify the relevant per unit costs and revenues for the alternatives. If required, round your answers to the nearest cent.

Product	Relevant Revenue	Relevant Costs	Incremental Contribution Margin
Bagels with cream cheese	$	$	$
Bagel sandwiches	$	$	$

Are there any sunk costs?

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2. Based on the information in requirement 1, should Bakers Bagels expand its product offerings? SelectYesNoCorrect 8 of Item 1

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3. Suppose that Bakers Bagels did expand its product line to include bagels with cream cheese and bagel sandwiches. Based on customer feedback, the company determined that it could further process those two products into bagels with cream cheese and fruit and bagel sandwiches with cheese. The company's accountant compiled the following information:

Product (per unit)	Sales Revenue if Sold without Further Processing		Sales Revenue if Processed Further		Additional Processing Costs
Bagels with cream cheese	$2.50		$3.50		Fruit: $1.00
Bagel sandwiches	3.50		4.50		Cheese: 0.50

Perform an incremental analysis to determine if Bakers Bagels should process its products further. If required, round your answers to the nearest cent. If an amount is zero, enter "0".

Bakers Bagels, Inc.
Sell-or-Process-Further Decision
Incremental Analysis
		Bagels with Cream Cheese and Fruit		Bagel Sandwiches with Cheese
New selling price if processed further		$		$
Selling price without further processing
Incremental revenue		$		$
Less incremental costs
Operating income from further processing		$		$