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FIN 200 Week 4 CheckPoint Break-Even Analysis

# FIN 200 Week 4 CheckPoint Break-Even Analysis - Healthy...

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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 b. calculate the profit of loss on 12,000 bags and on 25,000 bags. c. what is the degree of operating leverage change as the quantity sold increases? d. If healthy foods has an annual interest expense of \$10,000, calculate the degree of financial leverage at both 20,000 and 25,000 bags e. what is the degree of combined leverage at both sales levels. a. what is the break-even point in bags Break-even point = Fixed cost/unit contribution margin unit contribution margin = selling price per unit - variable cost per unit = \$10 - (50 x 0.10) = 10 - 5 = \$5 Breakeven point = 80,000/5 = 16,000 bags b. calculate the profit of loss on 12,000 bags and on 25,000 bags. Desired sales (in units) = (fixed cost + desired profit)/unit contribution margin

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12,000 = (80,000 + desired profit)/5 80,000 + desired profit = 60,000 Desired profit/loss = 60,000 - 80,000 Net loss = 20,000 25,000 = (80,000 + desired profit)/5 125,000 = 80,000 + desired profit

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