Why Choose Us?
0% AI Guarantee
Human-written only.
24/7 Support
Anytime, anywhere.
Plagiarism Free
100% Original.
Expert Tutors
Masters & PhDs.
100% Confidential
Your privacy matters.
On-Time Delivery
Never miss a deadline.
Finding the break-even point You are working for a business named Cool Water which is currently selling bottled water in cases, containing four six-packs, to supermarkets and convenience stores for $9
Finding the break-even point
You are working for a business named Cool Water which is currently selling bottled water in
cases, containing four six-packs, to supermarkets and convenience stores for $9.00 per
case. Last year the business sold 292 000 cases. The variable cost per case is $5.60 and
fixed costs are $680 000 per year. The manager has indicated that they considering another
possible price change to help increase the business' profits. The alternative the business is
considering is to increase the selling price per case to $9.45. They believe this would result
in a loss of sales of 92 000 cases.
The manager has asked you to calculate the items listed below
1. Current amounts for:
a. Contribution margin (per case and in total)
b. Break-even (in cases and dollars)
c. Profit (net income)
2. Amounts for an alternative:
a. Contribution margin (per case and in total)
b. Break-even (in cases and dollars)
c. Profit (net income)
3. Provide your recommendation with an explanation
Expert Solution
1) For Current Amounts:
a. Contribution Margin per Case :
Contribution Margin per Case = Selling Price per case - Variable Cost per case
= 9-5.60
= $3.40
= 3.40*292,000
= $992,800
b. Break even in Cases:
Break even in cases = Fixed Costs/Contribution Margin per Unit
= 680,000/3.40
= 200,000 cases
Break even in Dollars = 200,000*9 = $1,800,000
c. Profit (Net Income):
Profit (Net Income) = Contribution Margin - Fixed Costs
= 992,800-680,000
= $312,800
2) For alternative:
a. Contribution Margin per Case:
Contribution Margin per Case = Selling Price per case - Variable Cost per case
= 9.45 - 5.60
= $3.85
Total Contribution Margin = Unit Contribution Margin*Number of Units
= 3.85*200,000
= $770,000
b. Break even in Cases and in Dollars:
Break even in Cases = Fixed Costs/Contribution Margin per Unit
= 680,000/3.85
= 176,623.38 units
Break even in Dollars = 176,624*9.45 = $1,669,096.8
c. Profit:
Profit = 770,000-680,000 = $90,000
3) After increasing the price, profit reduce from $312,800 to $90,000. So, the selling price should not be increased, as the profits will decrease.
Archived Solution
You have full access to this solution. To save a copy with all formatting and attachments, use the button below.
For ready-to-submit work, please order a fresh solution below.
