Checkpoint Break-Even Analysis

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?

                    10 – 5 = 5     80,000/5 = 16,000

 

 

               b) Calculate the profit or loss on 12,000 bags and on 25,000 bags.

      $10(12,000) - $5(12,000) - $80,000 = $120,000 - $60,000 - $80,000 = $20,000 Loss

     

    $10(25,000) - $5(25,000) - $80,000 = $250,000 – 125,000 - $$80,000 = $45,000 Profit   

 

               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?

20,000($10 - $5)/20,000($10 - $5) - $80,000 = $100,000/$100,000 - $80,000 =

                                                                                                $100,000/$20,000 = 5
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