FIN 200:What is the break-even point in bags?

FIN 200

Axia College of
University of Phoenix (UoP)

Introduction to Finance: Harvesting the Money
Tree

Fin 200 Week 4 Solution

CheckPoint: Break-Even
Analysis

• Resource: Ch. 5 of Foundations
  of Financial Management
• Due Date: Day 5 [Individual
  forum]
• Complete Problem 13 on p.
  144.

Healthy Foods, Inc., sells 50-pound bags of grapes to
the military for $10 a bag. The fixed costs of this operation are $80,000, while
the variable costs of the grapes are $.10 per pound.
a. What is the
break-even point in bags?
b. Calculate the profit or loss on 12,000 bags and
on 25,000 bags.
c. What is the degree of operating leverage at 20,000 bags
and at 25,000 bags? Why does the degree of operating leverage change as the
quantity sold increases?
d. If Healthy Foods has an annual interest expense
of $10,000, calculate the degree of financial leverage at both 20,000 and 25,000
bags.
e. What is the degree of combined leverage at both sales
levels?