week 4 checkpoint

# Week 4 checkpoint - 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

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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? Unit Contribution Margin (UCM) = Price – Variable Cost = \$10 – (50 × \$0.10) = \$10 - \$5 = \$5 BEP in bags = Fixed Costs UCM = \$80,000 \$5 = 16,000 bags b. Calculate the profit or loss on 12,000 bags and on 25,000 bags. For 12,000 bags: Sales (\$10 × 12,000) \$120,000 Less: Variable Costs (\$0.10 × 50 × 12,000) \$60,000 Contribution Margin \$60,000 Less: Fixed Costs \$80,000 Net Loss \$20,000 For 25,000 bags: Sales (\$10 × 25,000) \$250,000 Less: Variable Costs (\$0.10 × 50 × 25,000) \$125,000 Contribution Margin \$125,000 Less: Fixed Costs \$80,000 Net Profit \$45,000 c. What is the degree of operating leverage at 20,000 bags and at 25,000 bags? Why does the degree of operating leverage change as the quantity sold increases?

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## This note was uploaded on 01/05/2010 for the course HUM 113 taught by Professor Shannon during the Fall '07 term at University of Phoenix.

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Week 4 checkpoint - 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

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