Practice BE - Oreo 02 - Answer Key

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

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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?
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