Economilicious bread company decided to expand its offering

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Reference no: EM132260142

Economilicious Bread Company decided to expand its offering. The company introduced a new bagel line called Adam Smith’s Bodacious Bagels. This line required a $1,100,000 high-temperature oven which can only be used for bagels, but can be resold for $400,000. To train the workforce on how to make bagels, there was a one-time employee training cost of $200,000. Labor and material cost sixty cents ($1.30) per bagel. The proprietors, two economics professors, are paid an annual salary of $150,000 each as management consultants for the entire business (all product lines). The annual lease on the production building is $1,000,000 (all products produced same building). Investments of similar risk earn an annual interest rate of 10%. You are hired as a consultant to answer the following questions.

a. Which of these costs, if any, are sunk?

b. From the information given, what is the only hidden cost?

c. If Economilicious Bread Company is producing 100,000 bagels, at what price should Economolicious Bread Company shut-down bagel production in the short-run?

d. You are now considering long-run profitability. Consider all relevant costs given and allocate 25% of management consultants’ salary and building lease cost to the bagel division. At what price per bagel is the bagel-division profitable given annual production of 1,000,000 bagels?

Reference no: EM132260142

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