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Fruit-Pit Company

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)

Please teach me to find:
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)

Please teach me to find:
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.

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