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break even analysis

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13. Healthy Foods, Inc., sells 50-pound 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 pound.

A .What is the break-even point in bags?

  • break even analysis -

    Profit=costs
    10/50 * n=80000+.1n where n is number of pounds. n will have to be a multiple of 50 the way the bags are made.

    .2n-.1n=80000
    n= 800,000 lbs.

  • break even analysis -

    16,000 bags

  • break even analysis -

    what is the degree of operating leaverage at 20,000 bags and at 25,000 bags

  • break even analysis -

    The degree of operating leverage at 20,000 bags and at 25,000 bags

    DOL = (Quantity x (Selling Price - Variable Cost))/((Quantity x (Selling Price - Variable Cost))- Fixed Cost)

    DOL (20,000) = (20,000*(10-5))/(((20,000*(10-5))-80,000) = 5 times

    DOL (25,000) = (25,000*(10-5))/(((25,000*(10-5))-80,000) = 2.78 times

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