Reference no: EM13219004

The Columbia Company manufactures a diverse line of bakery products. They are currently producing and selling 50,000 loaves of wheat bread per month at a price of $3.00 in various retail outlets throughout the state. A local chain store has asked Columbia to produce 10,000 loaves of the wheat bread per month with the store's name on the packaging. The store brand wheat will be identical in ingredients as well as technic of production. Estimates are sales of 10,000 loaves per month of the store brand will unfortunately cause a reduction in sales of Columbia's existing wheat bread to a level of 47,000 per month. The retail price of the store brand will be lower at $2.50 per loaf. The controller of Columbia in analyzing the production of the generic loaf has determined that labor will have to be paid time and a half for the extra bread production. In addition the production of the new wheat bread will increase wheat flour purchases to a level which will now qualify Columbia for a 10% discount on the additional wheat flour needed to produce the additional units. Packaging costs per unit will also change as a less expensive plastic bag will be used for the store brand. The packaging cost per unit for the generic will fall to 15 cents. Given the current cost of wheat bread production, answer questions a thru d. Direct labor cost/unit: .80 Wheat flour cost/unit: .40 Indirect labor cost/unit: .35 Spoilage per unit: .02 Packaging per unit: .20 Utilities per unit: .15 Fixed cost per unit: .40

A) Itemize Columbia's Incremental Costs per unit and their corresponding value.

B) Itemize the adjustments and their corresponding value.

C) What is the level of incremental profit?

D) Using the incremental profit framework, should Columbia produce the store brand wheat bread