California Gardens, Inc., prewashes, shreds, and distributes a variety of salad mixes in 2-pound bags. Doug...
California Gardens, Inc., prewashes, shreds, and distributes a variety of salad mixes in 2-pound bags. Doug Voss, Operations VP, is considering a new Hi-Speed shredder to replace the old machine, referred to in the shop as "Clunker." Hi-Speed will have a fixed cost of
$80,000
per month and a variable cost of
$1.30
per bag. Clunker has a fixed cost of only
$36,000
per month, but a variable cost of
$1.80.
Selling price is
$2.60
per bag.
a) What is the crossover point in units (point of indifference) for the processes?
The crossover point is
nothing
units. (Round your response to the nearest whole number.)
b) What is the monthly profit or loss if the company changes to the Hi-Speed shredder and sells
70,000
bags per month?
The monthly profit or loss if the company changes to the Hi-Speed shredder and sells
70,000
bags per month is
$nothing.
(Round your response to the nearest dollar and include a minus sign if necessary.)
c) What is the monthly profit or loss if the company stays with Clunker and sells
70,000
bags per month?
The monthly profit or loss if the company stays with Clunker and sells
70,000
bags per month is
$nothing.
(Round your response to the nearest dollar and include a minus sign if necessary.)
Homework Answers
1. INDIFFERENCE POINT = (FIXED COST A - FIXED COST B) / (VARIABLE COST B - VARIABLE COST A)
FC A = 80000
VC A = 1.3
FC B = 36000
VC B = 2.6
INDIFFERENCE POINT(A TO B) = (80000 - 36000) / (2.6 - 1.3) = 33846
2.FIXED COST = 80000
VARIABLE COST = 1.3
PRICE PER UNIT = 2.6
EXPECTED VOLUME = 70000
PROFIT = UNITS * CONTRIBUTION MARGIN - FIXED COST
PROFIT = (70000 * (2.6 - 1.3)) - 80000 = 11000
3. FIXED COST = 36000
VARIABLE COST = 1.8
PRICE PER UNIT = 2.6
EXPECTED VOLUME = 70000
PROFIT = UNITS * CONTRIBUTION MARGIN - FIXED COST
PROFIT = (70000 * (2.6 - 1.8)) - 36000 = 20000
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California Gardens, Inc., prewashes, shreds, and distributes a
variety of salad mixes in 2-pound bags. Doug...
California Gardens, Inc., prewashes, shreds, and distributes a variety of salad mixes in 2-pound bags. Doug...
California Gardens, Inc., prewashes, shreds, and distributes a variety of salad mixes in 2-pound bags. Doug Voss, Operations VP, is considering a new Hi-Speed shredder to replace the old machine, referred to in the shop as "Clunker." Hi-Speed will have a fixed cost of $83 comma 000 per month and a variable cost of $1.25 per bag. Clunker has a fixed cost of only $43 comma 000 per month, but a variable cost of $1.75. Selling price is $2.50 per...
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