NOTE: Each small cup of yogurt is sold for $3 and the cost of producing the froz
ID: 2694783 • Letter: N
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 Q: Show what would happen to the EBDAT breakeven point in terms of survival sales if an additional $30,000 was spent on advertising in 2013 while the other fixed costs remained the same, production costs remained at $1.50 per cup, and the 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 30,000 extra was spent on advertising,
the breakeven point would increas by 30,000/1.5 = 20,000 cups
hence the new breakeven point is 283,333.33 cups
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