NOTE: Each small cup of yogurt is sold for $3 and the cost of producing the froz

Question

NOTE: Each small cup of yogurt is sold for $3 and the cost of producing the frozen yogurt is $1.50 per cup. Admin. expenses, including Jen and Larry's salaries along with 2 other accountants were estimated to be $180,000 in 2013. Marketing expenses, advertising were projected to be $200,000 in 2013. Interest expenses were estimated at 15,000. The average tax rate is expected to be 25% of taxable income. Equation: EBDAT= Revenues- Variable Costs- Cash fixed costs QUESTION: Show what would happen to the EBDAT breakeven in terms of survival revenues if the cost of producing a cup of yogurt increased to $1.60 but the selling price remained at $3.00 per cup. How would the EBDAT breakeven change if production costs declined to $1.40 per cup when the yogurt selling price remained at $3.00 per cup?

Explanation / Answer

Current Break even point is

( 3 - 1.5 ) x = 180,000 + 200,000 + 15,000

x = 395,000 / 1.5

x = 263,333.33 cups is the breakeven

If the cost is 1.6

then x = 395000 / ( 3-1.6 ) = 282142.86 cups

if cost is 1.4

then x = 395000/( 3- 1.4 ) = 246875 cups

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