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Dmitrij
1 month ago
6

Zan Azlett and Angela Zesiger have joined forces to start​ A&Z Lettuce​ Products, a processor of packaged shredded lettuce f

or institutional use. Zan has years of food processing​ experience, and Angela has extensive commercial food preparation experience. The process will consist of opening crates of lettuce and then​ sorting, washing,​ slicing, preserving, and finally packaging the prepared lettuce.​ Together, with help from​ vendors, they think they can adequately estimate​ demand, fixed​ costs, revenues, and variable cost per bag of lettuce. They think a largely manual process will have monthly fixed costs of $ 37, 500 and variable costs of $ 1.60 per bag. A more mechanized process will have fixed costs of $ 72,000 per month with variable costs of $ 1.00 per bag. They expect to sell the shredded lettuce for $ 3.00 per bag. ​
a) The​ break-even quantity in units for the manual process​ =________________ bags ​(round your response to the nearest whole​ number).

​b) The revenue for the manual process at the​ break-even quantity​ = ​$ ________________ ​(round your response to the nearest whole​ number). ​

c) The​ break-even quantity in units for the mechanized process​ = ________________ bags ​(round your response to the nearest whole​ number).

​d) The revenue for the mechanized process at the​ break-even quantity​ = ​$ ________________ ​(round your response to the nearest whole​ number).

​e) For monthly sales of 65,000 ​bags, for the option with manual​ processing, A&Z Lettuce Products will have a profit of ​$ nothing ​(round your response to the nearest whole number and include a minus sign if the profit is​ negative).

​f) For monthly sales of 65,000 ​bags, for the option with mechanized​ processing, A&Z Lettuce Products will have a profit of ​$ ________________ ​(round your response to the nearest whole number and include a minus sign if the profit is​ negative).

​g) The quantity at which Zan and Angela are going to be indifferent between the manual and mechanized process​ = ________________ bags ​(round your response to the nearest whole​ number). ​

h) If the demand exceeds the point of​ indifference, then Zan and Angela should prefer the option with ________________. If the demand stays below the point of​ indifference, then Zan and Angela should prefer the option with ________________
Business
1 answer:
Scilla [3.8K]1 month ago
8 0

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.

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