Zan Azlett and Angela Zesiger have joined forces to start A&Z Lettuce Products,
ID: 345197 • Letter: Z
Question
Zan Azlett and Angela Zesiger have joined forces to start A&Z Lettuce Products, a processor of packaged shredded lettuce for institutional use. Zan has years of food processing experience, and Angela has extensive commercial food preparation experience. The process will consist of opening crates of lettuce and then sorting, washing, slicing, preserving, and finally packaging the prepared lettuce. Together, with help from vendors, they think they can adequately estimate demand, fixed costs, revenues, and variable cost per bag of lettuce. They think a largely manual process will have monthly fixed costs of $ 36 comma 000 and variable costs of $ 2.00 per bag. A more mechanized process will have fixed costs of $ 72 comma 000 per month with variable costs of $ 1.50 per bag. They expect to sell the shredded lettuce for $ 3.00 per bag. e) For monthly sales of 55 comma 000 bags, for the option with manual processing, A&Z Lettuce Products will have a profit of $ nothing (round your response to the nearest whole number and include a minus sign if the profit is negative). f) For monthly sales of 55 comma 000 bags, for the option with mechanized processing, A&Z Lettuce Products will have a profit of $ nothing (round your response to the nearest whole number and include a minus sign if the profit is negative). g) The quantity at which Zan and Angela are going to be indifferent between the manual and mechanized process = nothing bags (round your response to the nearest whole number).
Explanation / Answer
e) Total profit in the manual process with the sale of 55000 begs.
Profit = Total Revenue - Total cost
Toal cost = fixed cost + variable cost
Fixed Cost = 36000 , and variable cost = 2*55000 => 110000
Total cost = 36000+110000 = 146000 $
Total Revenue = 3 * 55000 = 165000 $
Profit = 165000-146000 = 19000 $
f) Total profit in the mechanized process with the sale of 55000 begs.
Profit = Total Revenue - Total cost
Toal cost = fixed cost + variable cost
Fixed Cost = 72000 , and variable cost = 1.5*55000 => 82500
Total cost = 72000+82500 = 154500 $
Total Revenue = 3 * 55000 = 165000 $
Profit = 165000-154500 = 10500 $
g) Quantity at which A&Z going to be indifferent between both the process.
We have seen that in both the cases, Revenue is the same and Cost is different, which is creating the difference in profits.
So we need the quantity at which total cost is also same between both the process.
Let us consider the Quantity as x.
eq. for the manual process will be => 36000+2x
eq. for the mechanized process will be => 72000+1.5x
now, 72000+1.5x = 36000+2x
=> 72000-36000=2x-1.5x
=> 36000 = 0.5x
=> 72000 = x
hence for quantity of 72000 begs A&Z will indifferent between the manual and mechanized process.
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