Healthy food Inc sells 50lb bags of grapes to the military for $10 a bag.
The fixed costs of this operation are $80,000 while the variable costs of the grapes are $10 per lb.
Calculate the profit or loss on 12,000 bags and on 25,000 bags. Can you please walk me through on how to come to the answer. I am so confused.
How much will 12,000 bags of grapes bring in sales? 12,000 bags x $10/bag = $120,000
The profit is the sales - fixed costs = 120.000 - 80,000 = $40,000 profit.
Do the same for the 25,000 bags. Post your work and detail exactly what you don't understand if you get stuck.
What about the variable costs of $10 per pound?
I read that as $10/bag and not $10/lb. Disregard my work. Thanks Ms. Sue.
To calculate the profit or loss on a given number of bags, you'll need to understand the costs and revenue associated with the sale of the grapes.
Let's break down the costs and revenue first:
1. Fixed Costs: These are costs that do not change regardless of the number of bags sold. In this case, the fixed costs are $80,000.
2. Variable Costs: These are costs that vary with the number of bags sold. Here, the variable cost is $10 per pound of grapes. Since each bag weighs 50 pounds, the variable cost per bag is 50 pounds multiplied by $10 per pound, which equals $500.
3. Revenue: The revenue is the total amount received from selling the bags of grapes. For each bag, the price is $10. Therefore, the revenue per bag is $10 multiplied by the number of bags sold.
Now, let's calculate the profit or loss on 12,000 and 25,000 bags:
1. Profit or Loss on 12,000 bags:
Total Costs = Fixed Costs + (Variable Costs per Bag × Number of Bags)
Total Costs = $80,000 + ($500 × 12,000)
Total Costs = $80,000 + $6,000,000
Total Costs = $6,080,000
Total Revenue = Revenue per Bag × Number of Bags
Total Revenue = $10 × 12,000
Total Revenue = $120,000
Profit/Loss = Total Revenue - Total Costs
Profit/Loss = $120,000 - $6,080,000
Profit/Loss = -$5,960,000 (Loss)
The profit or loss on 12,000 bags is -$5,960,000, indicating a loss of $5,960,000.
2. Profit or Loss on 25,000 bags:
Total Costs = Fixed Costs + (Variable Costs per Bag × Number of Bags)
Total Costs = $80,000 + ($500 × 25,000)
Total Costs = $80,000 + $12,500,000
Total Costs = $12,580,000
Total Revenue = Revenue per Bag × Number of Bags
Total Revenue = $10 × 25,000
Total Revenue = $250,000
Profit/Loss = Total Revenue - Total Costs
Profit/Loss = $250,000 - $12,580,000
Profit/Loss = -$12,330,000 (Loss)
The profit or loss on 25,000 bags is -$12,330,000, indicating a loss of $12,330,000.
Note: In both cases, the profit is negative, indicating a loss.