Explore BrainMass

# Fruit-Pit Company

Not what you're looking for? Search our solutions OR ask your own Custom question.

This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

Fruit-Pit Company produces a single product. The results of the company's operations for a typical MONTH are presented in contribution format as follows:

Sales \$540,000
Variable expenses \$360,000
Contribution margin \$180,000
Fixed expenses \$120,000
Net operating income \$60,000

The company produced and sold 120,000 gallons of product during the month. (There were no beginning or ending inventories)

1. The break-even sales in gallons.
2. The break-even sales in dollars.
3. The sales in gallons that would be required to produce net operating income of \$90,000.
4. The margin of safety (MOS) in dollars.

b. An important part of processing is performed by a machine that is currently being leased for \$20,000 per MONTH. Fruit-Pit Company has been offered a business-option whereby it would pay \$0.10 incentive per gallon processed by the machine rather than the monthly lease.
1. Should the company choose the lease or the royalty plan?
2. Under the incentive plan compute break-even point in gallons.
3. Under the incentive plan compute break-even point in dollars.
4. Under the incentive plan determine the sales in gallons that would be required to produce net operating income of \$90,000.

#### Solution Preview

Break-even, Net Income target, MOS
Fruit-Pit Company produces a single product. The results of the company's operations for a typical MONTH are presented in contribution format as follows:

Sales \$540,000
Variable expenses \$360,000
Contribution margin \$180,000
Fixed expenses \$120,000
Net operating income \$60,000

The company produced and sold 120,000 gallons of product during the month. (There were no beginning or ending inventories)

First, you need to find the sales price and variable expenses per unit.
Sales \$540,000/120,000 gallons = \$4.50 per gallon
Variable expenses \$360,000/120,000 gallons = \$3.00 per gallon

1. The break-even sales in gallons.
Contribution margin per gallon = Selling price - Variable cost
= 4.50 - ...

#### Solution Summary

This solution is comprised of a detailed explanation to calculate Break-even, Net Income target, and MOS.

\$2.49