Answer:
a. The break-even quantity in units for manual process= 26,786 bags
b. $80,358
c. 36,000 bags
d. $108,000
e. $53,000
f. $58,000
g. 26,786 bags
h. mechanized process, manual process.
Explanation:
a. The calculation for break-even quantity is carried out using the formula
Fixed Costs ÷ (Revenue per Unit – Variable Cost per Unit)
= $ 37, 500 ÷ $3 - $1.60
= 26,786
b. The break-even point in sales dollars is found using the formula
Break-Even Point (sales dollars) = Fixed Costs ÷ Contribution Margin
with Contribution Margin defined as Price of Product – Variable Costs
= $37,500 ÷ ($3 - $1.60)
= 26,786 x $3= $80,358
c. The break-even quantity for the mechanized process can be calculated by
Fixed Costs ÷ (Revenue per Unit – Variable Cost per Unit)
= $72,000 ÷ $3 - $1 = 36,000 bags
d. To determine the revenue for the mechanized process at the break-even quantity, apply the formula
Fixed Costs ÷ Contribution Margin
where Contribution Margin = Price of Product – Variable Costs
= $72,000 ÷ ($3 - $1) = 36,000 bags x $3= $108,000
e. For 65,000 bags sold using the manual method, the calculation is 65,000 bags x $3 - $1.60 = $91,000-$37,500 (manual process fixed cost)
= $53,000
f. Utilizing the mechanized method for 65,000 bags, the equation would be 65,000 bags x $3 - $1 = $130,000 - $72,000 (manual process fixed cost)
= $58,000
h. The mechanized process option should be picked as it leads to greater returns if demand goes beyond the point of indifference, while the manual process should be favored if demand remains beneath that point.
