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Managerial Accounting - General Mills

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P2-36; Variable Cost to Break Even

General Mills (GM) makes Wheaties, Cheerios, Betty Crocker Cake Mixes, and many other food products. Suppose the product manager of a new GM cereal has determined that the appropriate wholesale price for a carton of the cereal is $48. Fixed costs of the production and marketing of the cereal is $15 million.

- The product manager estimates that she can sell 800,000 cartons at the $48 price. What is the largest variable cost per carton that GM can pay and still achieve a profit of $1 million?

- Suppose the variable cost is $30 per carton. What profit (or loss) would GM expect?

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Solution Summary

Using simple calculations using Excel, this solution calculates the largest cost to pay per carton for GM to maintain a $1 million profit, as well as the expected profit or loss resulting from a variable cost of $30 per carton.

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