Parsons-Ashworth Bread Company decided to diversify their product line. The company introduced a new bagel line called Brandon’s Bodacious Bagels. This line required a $500,000 high-temperature oven which can only be used for bagels, but can be resold for $200,000. To train the workforce on how to make bagels, there was a one-time employee training cost of $100,000. Labor and material cost sixty cents ($0.60) per bagel. Brandon and Jared are paid an annual salary of $100,000 each as management consultants for the entire business (all product lines). The annual lease on the production building is $600,000 (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.
- Which of these costs, if any, are sunk? [2 pts]
- From the information given, what is the only hidden cost? [2 pts]
- If Parsons-Ashworth are producing 100,000 bagels, at what price should Parsons-Ashworth shut-down bagel production in the short-run? Show all work. [3 pts]
- You are now considering long-run profitability. Consider all 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? Show all work. [3 pts]
PLEASE SEE ATTACHED DOCUMENT FOR FURTHER PROBLEM SETS AND NEED RESULTS IN 2HRS PLEASE.