Healthy Foods Inc. sells 50-pound bags of grapes to the military for $10 a bag.

Question

Healthy Foods Inc. sells 50-pound bags of grapes to the military for $10 a bag. The fixed costs of this operation are $102,000, while the variable costs of grapes are $.10 per pound.

   

What is the break-even point in bags? (Round your answer to 2 decimal places.)

   

Calculate the profit or loss (EBIT) on 11,000 bags and on 30,000 bags. (Input all amounts as positive values. Round your answers to the nearest whole number.)

   

What is the degree of operating leverage at 25,000 bags and at 30,000 bags? (Round your answers to 2 decimal places.)

   

If Healthy Foods has an annual interest expense of $12,000, calculate the degree of financial leverage at both 25,000 and 30,000 bags. (Round your answers to 2 decimal places.)

    

What is the degree of combined leverage at both 25,000 and 30,000 bags? (Round your answers to 2 decimal places.)

a.

What is the break-even point in bags? (Round your answer to 2 decimal places.)

Explanation / Answer

1) BEP (Bags) =Fixed cost /(price -VC)

                     = 102000 / (10 - (50*.10)]

                     = 102000 / (10-5 )

                     = 102000 / 5

                      = 20400 bags

2)

C)At 25000Bags ,

contribution = 25000*5= 125000

EBIT = 125000- 102000 = 23000

Degree of operating leverage = Contribution /EBIT

aT 25000 , = 125000/23000 = 5.43

At 30000= 150000/48000 =3.13

d)Degree of financial leverage =EBIT /(EBIT -I)

AT 25000, 23000/(23000-12000) = 23000/ 11000 = 2.09

AT 30000, 48000/ (48000-12000)= 48000/36000= 1.33

e)Degree of combined leverage = Operating *Financial leverage

AT25000 , 5.43*2.09 = 11.35

At 30000, 3.13*1.33 = 4.16

11000 bags 30000Bags contribution 11000*5 = 55000 30000*5 = 150000 Less:Fixed cost 102000 -102000 EBIT -47000 48000

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