For the most recent month, Campus Bagels had revenues of $120,000 by selling 120,000 bagels. During this month, Campus Bagels incurred fixed costs of $75,000 and variable costs of $30,000.

Management of Campus Bagels is considering extending their product line to include bagel sandwiches at a price of $4 per sandwich. They estimate selling FOUR bagels for EACH bagel sandwich. The variable cost per bagel sandwich would be $1.60 and Campus Bagels' total fixed costs will increase to $100,000 per year.

1. Assume Campus Bagels decides to introduce bagel sandwiches. At the expected sales mix, how many bagels and bagel sandwiches does Campus Bagels need to sell at the breakeven point?
2. Now, assume that Campus Bagels expects to sell a combined total volume of only 120,000 bagels and sandwiches at the same sales mix, but has yet to set a selling price for the sandwiches. What price would Campus Bagels need to charge for each bagel sandwich to make the breakeven?

Question 4 - Note: This is a problem on relevant costs and hence, there is a high likelihood that there will be redundant or irrelevant information!

Sutter Company can produce two products, Blenders and Electric Mixers.The company has assembled the cost data per unit pertaining to the two products:

Blender Electric Mixer

Selling price $20.00 $21.00

Direct materials ($2 per pound) cost 4.00 8.00

Direct labor ($6.00 per hour) cost 6.00 3.00

Variable manufacturing overhead cost 2.00 1.00

Fixed manufacturing overhead cost 1.60 0.80

Variable selling and administrative expenses 1.00 5.00

Fixed selling and administrative expense 2.40 1.50

Variable and fixed (unavoidable) manufacturing overhead cost driver rates were established on the basis of available capacity of 100,000 direct labor hours per year (these rates are $2.00 and $1.60 per direct labor hour, respectively). Similarly, theunavoidable fixed selling and administrative costs were averaged over normal capacity for allocation purposes. The nature of the two products is such that the variable selling and administrative cost is different for the two products.

The company has an opportunity to bid on a government contract that, if won, would be completed in the coming year. The contract is for a specialized product that requires the same technology as Blenders and Electric Mixers. The job would require the following resources:

Direct materials 10,000 pounds

Direct labor 50,000 hours

Because of the special nature of this job, extra supervision would be needed. The actual supervision of the job would be done by an experienced supervisor who earns a salary of $20,000 annually. This project would require half of her time. The experienced supervisor would be released from half of her regular duties and these would be covered by a second-line supervisor who earns a salary of $15,000 annually. The second-line supervisor would need to devote two-thirds of his time to cover the experienced supervisor's former duties. A new supervisor, at $12,000 annually, would be needed to cover the released duties of the second-line supervisor. This new supervisor would have no other duties.

Special tools, costing $8,000, would be needed. These tools normally have a life of two years. It is unlikely that there would be any future need for the tools, and they could be sold for $1,000 after the contract is finished. Assume that there are no selling and administrative costs for this special order.

Assume that the regular demand is limited to 40,000 units of blenders and 50,000 units of electric mixers.

1. Calculate the Total CM before the government bid.

1. Determine the minimum total bid price for the government contract that would leave the company's total profits unaffected.

1. Assume that there are no constraints on DL time. Does this change your answer to (2)? Explain.

1. Refer to the original data.Assume that the government contract offers a total price of $500,000 for this special job. Assume that workers can work overtime to overcome labor capacity constraints. Would you accept the offer? What is the maximum overtime premium per hour (i.e. on top of regular pay) that you would be willing to pay?