Question

Boulder Organic Teas is considering a new product introduction - the Herbal Kicker Tea. Labor costs of the new product is approximately $0.15 per box of tea produced. Material costs per new box of the tea are: Material Tea leaves Additional flavoring Packaging (bag, box, etc) Cost per box produced $0.02 $0.03 $0.25 Boulder Organic plans to add a dedicated production line to support the new product costing $250,000 per year. Boulder Organic's marketing department has determined the price per box of Herbal Kicker Tea should be $1.40. In order to breakeven on this product, how many boxes of tea should be made and sold?

Answer 1

Total variable cost per box = Labor cost + Tea leaves + Additional flavouring + Packing

= $0.15 + $0.02 + $0.03 + $0.25

= $0.45

Contribution margin per box = Selling price per box - Total Variable cost per box

= $1.40 - $0.45

= $0.95

Breakeven point = Fixed cost / Contribution margin per box

Fixed cost is $250,000 per year. (Given in question)

= $250,000 / $0.95

= 263,158 boxes of tea to be sold for Breakeven