Practice BE - Oreo 02 - Answer Key

Practice BE - Oreo 02 - Answer Key - Break Even Answer Key...

Info icon This preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Break Even Answer Key Question #1 Nabisco selling price = $1 * (1 - .35) * (1 - .2) = $1 * .65 * .80 = $0.52 Question #2 Note that the question begins with the statement that you work for Nabisco. That means that the selling price is Nabisco’s selling price from question #1. The statement that “all Oreos produced at this plant are sold at the price and size that the Ithaca grocery sells” is to allow you to assume that Walmart doesn’t get a better price than Ithaca Grocery – everyone sells at the same price, and therefore Nabisco’s revenue/unit is the same for all units. a) Unit contribution = SP – VC. VC = .16 + .14 + .02 = .32 so Contribution = .52 - .32 = $0.20 b) BE Units = (FC + Depreciation) / (Unit contribution). Depreciation = 22 Million/10years = 2.2 M/year FC = 300,000 + 6,500,000 = 6,800,000 BE Units = $9.0 M / $0.20 = 45,000,000 units c) Profit must = $5 million (called target profit in financial analysis/accounting). Two ways to do this: 1. BE Units = 45,000,000 units 0 profit by definition. Now how many more units must be sold to give you 5 million in contribution?
Image of page 1
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern