Snacks Company is considering adding a new product line called Party Munchies. The company currently has excess productive capacity that could be used to produce Party Munchies. Each Party Munchies would sell for $12 and the variable costs per unit would be $5. Expected demand for Party Munchies per year is 24,000 units. Of the total fixed costs, Snacks plans to allocate $45,000 to the Party Munchies product line.

a. Should Party Munchies be added? Support your position with calculations.

b. Which of the following statements is true with respect to the decision concerning Party Munchies?

1. The $45,000 is relevant since the fixed costs must still be incurred.

2. Since there is excess productive capacity, the fixed costs are irrelevant.

3. The opportunity cost of adding the product is $45,000.

4. Other relevant factors include demand for other product lines that could be increased, expertise with the new line, and advertising and other selling costs.