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?
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.
16,000 bags
what is the degree of operating leaverage at 20,000 bags and at 25,000 bags
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
To find the break-even point in bags, we need to determine the number of bags that need to be sold in order to cover the fixed costs and variable costs.
First, let's calculate the total variable cost per bag. Since the grapes are sold in 50-pound bags and the variable cost is $0.10 per pound, the variable cost per bag would be:
Variable Cost per Bag = Variable Cost per Pound x Pounds per Bag
Variable Cost per Bag = $0.10/pound x 50 pounds = $5
Next, let's calculate the total revenue per bag. Each bag is sold for $10.
Now, let's calculate the contribution margin per bag. The contribution margin is the difference between the selling price and the variable cost per bag.
Contribution Margin per Bag = Revenue per Bag - Variable Cost per Bag
Contribution Margin per Bag = $10 - $5 = $5
The contribution margin per bag represents the portion that contributes to covering the fixed costs.
Finally, let's calculate the break-even point in bags using the formula:
Break-even point in Bags = Fixed Costs / Contribution Margin per Bag
Break-even point in Bags = $80,000 / $5 = 16,000 bags
Therefore, the break-even point in bags is 16,000. This means that Healthy Foods, Inc. needs to sell a minimum of 16,000 bags of grapes in order to cover its costs and break-even.