devry marketing 303 - A The break-even point in bags of...

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A. The break-even point in bags of salads is $10 – (50 x $0.10) = $10 - $5 = $5 BEP = FC/P-VC = $80,000/$5 = 16,000 bags B. Profit or loss for 12,000 and 25,000 bags a. Sales ($10 x 12,000) = $120,000 Less: Variable Costs ($0.10 x 50 x 12,000) = $60,000 Contribution Margin = $60,000 Less: Fixed Costs = $80,000 Net Loss = $20,000 b. Sales ($10 x 25,000) = $250,000 Less: Variable Costs = ($0.10 x 50 x 25,000) $125,000 Contribution Margin = $125,000 Less: Fixed Costs = $80,000 Net Loss = $45,000 C. DOL (20,000) = Q(P-VC)/Q(P-VC) – FC = $20,000($10-$5)/20,000($10-$5) - $80,000 = $20,000($5)/$20,000($5) - $80,000 = $100,000/$20,000 = $5.00x DOL (25,000) = Q(P-VC)/Q(P-VC) – FC = $25,000($10-$5)/25,000($10-$5) - $80,000 = $25,000($5)/$25,000($5) - $80,000 = $125,000/$45,000 = $2.78x Leverage is less due to the higher profit and a decreased need for loans and additional debt; the higher the profit, the lesser the leverage. D. DFL (20,000) EBIT/EBIT – I = $20,000/$20,000 - $10,000 = $20,000/$10,000 = $2.00x DFL (25,000) EBIT/EBIT – I = $45,000/$45,000 - $10,000 = $45,000/$35,000 = $1.29x
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E. Degree of combined leverage at both sales levels = DCL (20,000) Q(P-VC)/Q(P-VC) – FC – I = 20,000($10 - $5)/20,000($10 - $5) - $80,000 - $10,000 = 20,000($5)/20,000($5) - $90,000 = $100,000/$10,000 = $10.00x DCL (25,000) Q(P-VC)/Q. FINAL PRICING The MSRP may or may not be the final price for which products are sold. For strong brands that are highly sought by consumers the MSRP may in fact be the price at which the product will be sold. But in many other cases, as we will see, the price setting process
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