Zan Azlett and Angela Zesiger have joined forces to start A&Z; Lettuce Products,
ID: 469879 • 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 $36,000 and variable costs of $2.00 per bag. A more mechanized process will have fixed costs of $80,000 per month with variable costs of $1.00 per bag. They expect to sell the shredded lettuce for $2.50 per bag. The break-even quantity in units for the manual process = bags (round your response to the nearest whole number). The revenue for the manual process at the break-even quantity = $ (round your response to the nearest whole number). The break-even quantity in units for the mechanized process = bags (round your response to the nearest whole number). The revenue for the mechanized process at the break-even quantity = $ (round your response to the nearest whole number). For monthly sales of 60,000 bags, for the option with manual processing, A&Z; Lettuce Products will have a profit of $ (round your response to the nearest whole number and include a minus sign if the profit is negative). For monthly sales of 60,000 bags, for the option with mechanized processing, A&Z; Lettuce Products will have a profit of $ (round your response to the nearest whole number and include a minus sign if the profit is negative). The quantity at which Zan and Angela are going to be indifferent between the manual and mechanized process = Q bags (round your response to the nearest whole number). If the demand exceeds the point of indifference, then Zan and Angela should prefer the option with processing If the demand stays below the point of indifference, then Zan and Angela should prefer the option with processing.Explanation / Answer
MANNUAL PROCESS
FIXED COSTS
36000
$/MONTH
VARIABLE COST
2
$/BAG
MECHANIZED PROCESS
FIXED COSTS
80000
$/MONTH
VARIABLE COST
1
$/BAG
SELLING PRICE
2.5
$/BAG
A) BREAKEVEN QUANITY (MANUAL PROCESS)
AT BREAKEVEN QUANTITY, SALES = COST
SALES = 2.5 * a
(no of bags = a)
COST = FC+VC = 36000 + 2*a
solving, 2.5a=36000 +2a
a=
72000
bags
B) REVENUE AT BREAK EVEN QUANTITY (MANUAL PROCESS)
REVENUE = SELLING PRICE * QUANTITY
REVENUE =
$ 1,80,000
C) BREAKEVEN QUANITY (MECHANIZED PROCESS)
Sales = 2.5 a
Cost = 80000 + 1*a
Solving for a,
a=
53333
bags
D) REVENUE AT BREAK EVEN QUANTITY (MECHANIZED PROCESS)
REVENUE = SELLING PRICE * QUANTITY
REVENUE =
$ 1,33,333
MANNUAL PROCESS
FIXED COSTS
36000
$/MONTH
VARIABLE COST
2
$/BAG
MECHANIZED PROCESS
FIXED COSTS
80000
$/MONTH
VARIABLE COST
1
$/BAG
SELLING PRICE
2.5
$/BAG
A) BREAKEVEN QUANITY (MANUAL PROCESS)
AT BREAKEVEN QUANTITY, SALES = COST
SALES = 2.5 * a
(no of bags = a)
COST = FC+VC = 36000 + 2*a
solving, 2.5a=36000 +2a
a=
72000
bags
B) REVENUE AT BREAK EVEN QUANTITY (MANUAL PROCESS)
REVENUE = SELLING PRICE * QUANTITY
REVENUE =
$ 1,80,000
C) BREAKEVEN QUANITY (MECHANIZED PROCESS)
Sales = 2.5 a
Cost = 80000 + 1*a
Solving for a,
a=
53333
bags
D) REVENUE AT BREAK EVEN QUANTITY (MECHANIZED PROCESS)
REVENUE = SELLING PRICE * QUANTITY
REVENUE =
$ 1,33,333
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