2-44 Sales-Mix Analysis Study Appendix 2A. Eames Farms produces strawberries and

Question

2-44 Sales-Mix Analysis Study Appendix 2A. Eames Farms produces strawberries and raspberries. Annual fixed costs are $15,300. The cost driver for variable costs is "pints of fruit produced." The variable cost is $.85 per pint of strawberries and $.90 per pint of raspberries. Strawberries sell for $1.05 per pint, raspberries for $1.30 per pint. Five pints of strawberries are produced for every two pints of raspberries. 1. Compute the number of pints of strawberries and the number of pints of raspberries produced and sold at the break-even point. 2. Suppose only strawberries are produced and sold. Compute the break-even point in pints. 3. Suppose only raspberries are produced and sold. Compute the break-even point in pints.

Explanation / Answer

Part 1

Contribution per pint of strawberry = $ 1.05 - $ $0.85 = $0.2

Contribution per pint of rasberry = $ 1.30 - $ $0.90 = $ $0.4

Let x be the pint of strawberry produced and y be the pint of rasberry produced

5x= 2y and Total contribution from one lot = 0.2* 5 + 0.4 *2 =1+0.8 =1.8

Annual Fixed Cost = $ 15,300

Breakeven lot = $15,300 /1.8 = 8500 lots

Now in one lot there are 5 pint of strawberry and 2 pint of rasberry

Breakeven strawberry pints to be prodcued = 8500* 5 = 42,500 pints

Breakeven rasberry pints to be prodcued =8500 * 2 = 17,000 pints

Part 2

Contribution per pint of strawberry = $ 1.05 - $ $0.85 = $0.2

Annual Fixed Cost = $ 15,300

Breakeven units if only strawberry pints are produced = $ 15,300/0.2= 76,500 pints

Part 3

Contribution per pint of rasberry = $ 1.30 - $ $0.90 = $ $0.4

Annual Fixed Cost = $ 15,300

Breakeven units if only rasberry pints are produced = $ 15,300/0.4 = 38,250 pints

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