a distributer of pre washed shredded lettuce is opening a new plant and consider

Question

a distributer of pre washed shredded lettuce is opening a new plant and considering whether to use mechanized process or manual process to prepare the product. the manual process will have a fixed cost of $43400 per month and a variable cost of $1.80 per 5-pound bag. The mechanized process would have a fixed cost of $84600 per month and a variable cost of $1.30 per bag. The company expects to sell each bag of shredded lettuce for $2.50. (a) Find the break-even point for each process. (b)What is the monthly profit or loss if the company chooses the manual process and sells 70000 bags per month?

Explanation / Answer

(a) (a)    Find the break-even point for each process.

Manual process break-even point:

$43,400/($2.50-$1.80)=62,000 5lb bags

Mechanized process break-even point:

$84,600/($2.50-$1.30)= 70,500 5lb bags

(b)(b)   What is the monthly profit or loss if the company chooses the manual process and sells 70,000 bags per month?

Revenue formula used: ((Selling Price - Variable Cost)*Units sold)-Fixed Costs

(($2.50-$1.80)*70,000-$43,400=$5,600

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