Answer:
a. The break-even quantity in units for manual process= 26,786 bags
b. $80,358
c. 36,000 bags
d. $108,000
e. $53,000
f. $58,000
g. 26,786 bags
h. mechanized process, manual process.
Explanation:
a. Using the formula
Fixed Costs ÷ (Revenue per Unit – Variable Cost per Unit)
= $ 37, 500÷$3- $ 1.60
=26,786
b. Using the formula
Break-Even Point (sales dollars) = Fixed Costs ÷ Contribution Margin
where Contribution Margin = Price of Product – Variable Costs
=37, 500÷($3- $ 1.60)
=26,786 x $3= $80,358
c. Using the formula
Fixed Costs ÷ (Revenue per Unit – Variable Cost per Unit)
= $ 72,000÷$3- $1
=36,000 bags
d. Using the formula
Fixed Costs ÷ Contribution Margin
where Contribution Margin = Price of Product – Variable Costs
= $ 72,000÷($3- $1)
=36,000 bags x $3= $108,000
e. 65,000 bags x $3-$1.60= $91,000-$37,500 (manual process fixed cost)
= $53,000
f. 65,000 bags x $3-$1= $130,000-$72,000 (manual process fixed cost)
= $58,000
h. The mechanized process option should be chosen as this would bring more returns if the demand exceeds the point of indifference and the manual process if the demand stays below the point of indifference.