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    Fruit-Pit Company

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    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.

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    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.

    $2.19

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