Question

Zan Azlott and Angela Zesiger have joined forces to start A&Z Lettuce Products, a processor of packaged shredded lettuce for 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 faxed costs of $80,000 per month with variable costs of $1.50 per bag. They expect to sell the shredded lettuce for $2.75 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 SL (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 55,000 bags, for the option with manual processing, A8Z 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) 1) For monthly sales of 55,000 bags, for the option with mechanized processing, A8Z Lettuce Products will have a profit of $ fround your response to the nearest Enter your answer in each of the answer boxes Type here to search (102 *3 14 15 16 17

Answer 1

Answer with working is given below

Break Even Quantity Manual process (Fixed Cost/Contribution per unit) 32,609 Bags b) Revenue at Revenue at Break Even point $89,675 c) Mechanized process (Fixed Cost/Contribution per unit) 64,000 Bags d) Revenue at Break Even point $176,000 e) $25,750 Profit For monthly sales of 55,000 bags Manual processing profit Total Contribution Less: Fixed Cost Total Profit $63,250 $37,500 $25,750 f) -$11,250 Loss For monthly sales of 55,000 bags Mechanized processing Loss Total Contribution Less: Fixed Cost Total Profit $68,750 $80,000 -$11,250 Working note Manual Mechanized $2.75 $1.60 $1.50 $1.15 $1.25 Selling price Variable cost Contribution per unit $2.75 Fixed Cost $37,500 $80,000 g) Indifferent point Difference in Fixed cost Difference in variable cost $42,500 $0.10 $425,000 h) If demands exceeds point of indifference then Zan and Angela should prefer mechanized processing If demands stays below the point of indifference then Zan and Angela should prefer manual processing