United Snack Company sells 50-pound bags of peanuts to university dormitories fo

ID: 2771156 • Letter: U

Question

United Snack Company sells 50-pound bags of peanuts to university dormitories for $20 a bag. The fixed costs of this operation are $176,250, while the variable costs of peanuts are $.15 per pound. a. What is the break-even point in bags? (Round your answer to the nearest whole number.) Break-even point bags b. Calculate the profit or loss (EBIT) on 7,000 bags and on 20,000 bags. (Input all amounts as positive values. Round your answers to the nearest whole number.) Ba Profit/Loss Amount 7,000 000 (Click to select) | (Click to select) 20,000 (Click to select) 20,000 (Click to select) v c. What is the degree of operating leverage at 19,000 bags and at 24,000 bags? (Round your answers to 2 decimal places.) Degree of Operating Leverage Bags 19,000 24,000

Explanation / Answer

a)Variable cost per bag = 50 pound in a bag * .15 per pound = $ 7.5 per bag

contribution per unit = selling price -variable cost

= 20 - 7.5

=$ 12.5 per bag

BEP (bags ) =fixed cost/ contribution per bag

= 176,250 / 12.5

= 14,100 bags

b) EBIT =Total contribution -Fixed cost

At 7000 bags ,EBIT = [ (7000 * 12.5 ) - 176,250 ]

= [87,500 -176,250]

= $ - 88,750 (loss)

At20,000Bags ,EBIT =[(20,000 *12.5 ) - 176,250 ]

= [250,000 -176,250 ]

= $ 73,750

237500/61250

=3.88

300000/123750

=2.42

61250 -15000

=46250

123750-15000

=108750

237,500 /46,250

=5.14

300,000 / 108,750

= 2.76

61,250 / 46,250

=1.32

123,750/108,750

= 1.14

5.14 * 1.32

= 6.78%

2.76 *1.14

= 3.15%

19000 bags 24000 bags Total contribution =cont.per unit *number of bags ,where contribution per unit = 12.50 237,500 [12.50*19000] 300,000 [24000*12.50] EBIT =Total contribution -fixed cost ,where fixed csot =176250 61,250 [237,500-176250] 123,750 [300,000-176250] Degree of operating leverage = Contribution /EBIT

237500/61250

=3.88

300000/123750

=2.42