Break-Even Analysis: Multiproduct Environment

. Donald Tweedt started a company to produce and distribute natural fertilizers. Donald’s company sells two fertilizers that are wildly popular: green fertilizer and compost fertilizer.

 

Green fertilizer, the most popular among environmentally-minded consumers, commands the highest price and sells for $16 per 30-pound bag. Green fertilizer also requires additional processing and includes environmentally-friendly ingredients that increase its variable costs to $10 per bag. Compost fertilizer sells for $12 and has easily acquired ingredients that require no special processing. It has variable costs of $8 per bag. Tweedt’s total fixed costs are $35,000. After some aggressive marketing efforts, Tweedt has been able to drive consumer demand to be equal for each fertilizer.

Required:

Calculate the number of bags of green fertilizer that will be sold at break-even.
By $

What will be the incremental profit if the order is accepted?
$ of $

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Decision Focus: Eliminating Unprofitable Segments

 

8. Casagrande Company is currently operating at 80 percent capacity. Worried about the company’s performance, Mike, the general manager, reviewed the company’s operating performance. Following are sales and related cost information about Casagrande, in millions of dollars:

http://sjc.cengagenow.com/ilrn/books/sjma02h/images/ch07/sjma02h_ch07_pr7-27.gif

 

Required:

A.  What is the current operating profit for the company as a whole?
$

 

 

D.  What qualitative factors do you think management should consider before making this decision?

 

 

E.What impact could these qualitative factors have on the decision?

 

 

 

 

 

CVP: What-If Analysis

 

9. Last year, Mayes Company had a contribution margin of 30 percent. This year, fixed expenses are expected to remain at $120,000 and sales are expected to be $550,000, which is 10 percent higher than last year.

 

Required:

What must the contribution margin ratio be if the company wants to increase net income by $15,000 this year?
[removed] %

 

Operating Leverage

Burger Queen Restaurant had the following information available related to its operations from last year:

http://sjc.cengagenow.com/ilrn/books/sjma02h/images/ch06/sjma02h_ch06_ex6-09.gif

Required:

A.  What is Burger Queen’s operating leverage?
[removed]

B.  If sales increased by 30 percent, what would Burger Queen’s new net operating income be?
$[removed]

Break-Even Analysis

 

Jimmy’s Seafood Restaurant is a family-owned business on the North Carolina coast. In the last several months, the owner has seen a drop-off in business. Last month, the restaurant broke even. The owner looked over the records and saw that the restaurant served 1,000 meals last month (variable cost is $10 per meal) and incurred fixed costs totaling $25,000.

 

Required:

Calculate Jimmy’s average selling price for a meal.
$[removed] per meal

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