A company currently operates its flour mill 6 days per week (Monday through Satu
ID: 2794934 • Letter: A
Question
A company currently operates its flour mill 6 days per week (Monday through Saturday).
Flour sells for $24.27 per hundredweight (cwt) and the company purchases wheat at a price of $5.51 per bushel. 2.91 bushels of wheat are required per cwt of flour.
Fixed costs are currently $7,169 per day of operation. The labor cost of mill operations is $0.77 per cwt.
If the company decides to operate on Sunday, the labor cost of Sunday operations increases to $1.46 per cwt. If the mill were to operate on Sunday, the fixed cost on Sunday would increase by $820.
If the company decides to operate 7 days a week, what is the weekly break-even volume in terms of cwt? Assume the same amount of flour is produced in each day of the week.
HINT: You need to calculate the average daily variable cost for labor for a 7-day operation
Explanation / Answer
Total Fixed cost = [7169*6 days ]+ [7169+820]
= 43014+ 7989
= 51003
Variable Average labor cost = [(.77*6)+(1.46*1)sunday ] /7
= [4.62+1.46]/7
= 6.08/7
= .86857 per CWT
Material cost : 5.51*2.91 = 16.0341
Total variable cost = 16.0341+.86857 = 16.90267
Contribution per Cwt =price - Total variable cost
= 24.27- 16.90267
= $ 7.36733
Break even point (volume) =Fixed cost/contribution per Cwt
= 51003 /7.36733
= 6923 units(cwt)
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