The Market is a merchandiser of organic food items. The company is considering t

Question

The Market is a merchandiser of organic food items. The company is considering the possibility of selling oranges that would sell for $0.59 each. Oranges can be acquired in unlimited quantities for $0.43 each. There are no additional variable costs associated with acquiring and selling oranges since labor is on a salaried basis. However, in order to acquire oranges this price, the Market must pay $3,000 per year for membership in an International co-­op.

a)      How many Oranges would The Market need to sell annually to justify joining the co-­op (break-­even)?

b)      What would be the total revenue at the break-­even point?

c)      How many Oranges would the company need to sell to earn a profit of $5,000?

d)      If Oranges cost were $0.51 instead of $0.43, how many Oranges would need to be sold in order to earn the same $5,000?

Explanation / Answer

Answer:

a)

Break even point = Annual fixed cost/Contribution per unit = $3,000/0.16 = 18,750 units

b)

Total revenue at break even = 18,750 units*$0.59 per unit = $11, 062.5

c) Target profit = $5,000

Target units to achive this = (fixed cost+target profit)/Contribution per unit

= ($3,000 +$5,000)/$0.16 = 50,000 units

d) If oranges cost = $0.51

Oranges required to be sold to earn a profit of $5,000 =

(Target profit+Fixed cost)/Contribution per unit = ($5,000+$3,000)/0.08 = 100,000 units

Particulars In $ Selling price per unit 0.59 Less: Variable cosy per unit 0.43 Contribution per unit 0.16 Fixed cost (total) 3000 Annual membership

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