Question

Healthy Foods Inc. sells 50-pound bags of grapes to the military for $10 a bag. The fixed costs of this operation are $90,000, while the variable costs of grapes are $0.10 per pound.

answer to 2 dec Break-even point bags b. Calculate the profit or loss (EBIT) on 10,000 bags and on 35,000 bags. Profit/Loss Amount Bags 10,000 35,000

Answer 1

Selling Price Per Bag of (Each 50 Pounds Bag)					$10
Less: Variable Cost					$0.10
Contribution per Bag					$9.90
Breakeven Point
Fixed cost/Contribution Per Bag				9090.91	Bags
Fixed Cost : $ 90,000
b. Calculate Profit or Loss
Bags	Contribution	Fixed Cost	EBIT
10000	$    99,000.00	$90,000	$9,000
35000	$ 346,500.00	$90,000	$256,500
c. Degree of Operating Leverage
Bags		Degree of Operating Leverage
24000		1.61
35000		1.35
Degree of Operating Leverage
= Sales - Variable Cost/ Sales- Variable Cost-Fixed Cost
d. Degree of Financial Leverage = EBIT/EBIT-Interest
Bags		Degree of Financial Leverage
24000		1.11
35000		1.06
No of Bags Sales		24000	35000
Sales Price		$10	$10
Variable Cost		$0.10	$0.10
Sale Value		$240,000.00	$350,000.00
Less: Variable cost		$2,400.00	$3,500.00
Contribution		$237,600.00	$346,500.00
Less: Fixed Cost		$90,000.00	$90,000.00
EBIT		$147,600.00	$256,500.00
Less: Interest		$15,000.00	$15,000.00
Earning After Interest		$132,600.00	$241,500.00
Degree of Operating Leverage		1.61	1.35
Degree of Financial Leverage		1.11	1.06
EBIT/EBIT-Interest
e. Degree of Combined Leverage = Operating Leverage * Financial Leverage
(Or Contribution / EBIT)
Bags		Degree of Combined Leverage
24000		1.79
35000		1.43