Question

please provide formulas and calculations

2-3 Variable Cost to Break Even General Mills makes Nature Valley granola bars, Cheerios cereal, Yoplait yogurt, Häagen Dazs ice cream, and many other food products. Suppose the product manager of a new General Mills cereal has determined that the appropriate wholesale price for a cartonof the cereal is $50. Fixed costs of the production and marketing of the cereal are $20 million. 1. The product manager estimates that she can sell 860,000 cartons at the $45 price. What is the largest variable cost per carton that General Mills can pay and still achieve a profit of $1.5 million? 2. Suppose the variable cost is $29 per carton. What profit (or loss) would General Mills expect?

Answer 1

1.

Number of units sold = 860,000

Selling price per unit = $45

Total fixed costs = $20,000,000

Let Variable cost per unit = $K

Profit = $1,500,000

Profit = Sales - Total variable costs - Total fixed costs

1,500,000 = 860,000 x 45 - 860,000 x K - 20,000,000

1,500,000 = 38,700,000 - 860,000K - 20,000,000

860,000K = 17,200,000

K = 20

Variable cost per unit = $20

2.

Number of units sold = 860,000

Selling price per unit = $45

Variable cost per unit = $29

Total fixed costs = $20,000,000

Profit = Sales - Total variable costs - Total fixed costs

= 860,000 x 45 - 860,000 x 29 - 20,000,000

= 38,700,000 - 24,940,000 - 20,000,000

= - $6,240,000

Loss = $6,240,000

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