Question

Healthy Foods Inc. sells 50-pound bags of grapes to the military for $10 a bag. The fixed costs of this operation are $80,000, while the variable costs of grapes are $0.10 per pound. a. What is the break-even point in bags? (Round your answer to 2 decimal places.) Break-even point 16,000.00 bags b. Calculate the profit or loss (EBIT) on 13,000 bags and on 35,000 bags. Profit/Loss Amount Bags 13,000 35,000

Answer 1

Fixed Cost = $ 80,000, Bag Weight (w) = 50 pounds

Variable Cost (v) = $ 0.10 / pound, Selling Price (s) = $ 10 / bag

1. Calculating Break - even point in bags (x),

Variable Cost / bag (V) = v * w = $ 0.10 * 50 = $ 5

For Break - even point,

Total Inflows = Total Outflows ....(i)

Total Inflows = s * x, Total Outflows = Fixed Cost + Variable Cost = $ 80,000 + V * x

Applying above to (i),

s * x = $ 80,000 + V * x

Applying above values,

10x = 80000 + 5x

10x - 5x = 80000

5x = 80000

x = 80000 / 5 = 16,000