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# The Evergreen Fertilizer Company

4. The Evergreen Fertilizer Company produces fertilizer. The company's fixed monthly cost is \$25,000, and its variable cost per pound of fertilizer is \$0.15. Evergreen sells the fertilizer for \$0.40 per pound. Determine the monthly break-even volume for the company.

10. If the maximum operating capacity of the Evergreen Fertilizer Company described in problem 4 is 120,000 pounds of fertilizer per month, determine the break-even volume as a percentage of capacity.

20. Annie McCoy, a student at Tech, plans to open a hot dog stand inside Tech's football stadium during home games. There are seven home games scheduled for the upcoming season. She must pay the Tech athletic department a vendor's fee of \$3,000 for the season. Her stand and other equipment will cost her \$4,500 for the season. She estimates that each hot dog she sells will cost her \$0.35. She has talked to friends at other universities who sell hot dogs at games. Based on their information and the athletic department's forecast that each game will sell out, she anticipates that she will sell approximately 2,000 hot dogs during each game.
a. What price should she charge for a hot dog in order to break even?
b. What factors might occur during the season that would alter the volume sold and thus the break-even price Annie might charge.
c. What price would you suggest that Annie charge for a hot dog to provide her with a reasonable profit while remaining competitive with other food vendors?

#### Solution Preview

4. The Evergreen Fertilizer Company produces fertilizer. The company's fixed monthly cost is \$25,000, and its variable cost per pound of fertilizer is \$0.15. Evergreen sells the fertilizer for \$0.40 per pound. Determine the monthly break-even volume for the company.

BEP = Fixed Cost / Contribution Margin (CM)

Contribution Margin = Selling Price - Variable Cost

= \$0.40 - \$0.15 = \$.25

BEP = 25,000 / .25 = 100,000 Units

10. If the maximum operating capacity of the Evergreen Fertilizer Company described in problem 4 is 120,000 pounds of fertilizer per month, ...

\$2.19