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Managerial Decision Making - CVP Analysis

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A distributor of pre-washed shredded lettuce is opening a new plant and considering whether to use mechanized process or manual process to prepare the product. The manual process will have a fixed cost of $43,400 per month and a variable cost of $1.80 per 5-pound bag. The mechanized process would have a fixed cost of $84,600 per month and a variable cost of $1.30 per bag. The company expects to sell each bag of shredded lettuce for $2.50.

(a)Find the break-even point for each process.

(b)What is the monthly profit or loss if the company chooses the manual process and sells 70000 bags per month?

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Solution Summary

Solution depicts the steps to calculate BEP and monthly profit in the given case.

$2.19
See Also This Related BrainMass Solution

Accounting for Decision Making: CVP Graph

E5-4 Ewing Company estimates that variable costs will be 50% of sales, and fixed costs will total $800,000. The selling price of the product is $4.

Instructions
a. Prepare a CVP graph, assuming maximum sales of $3,200,000. (Note: Use
$400,000 increments for sales and costs and 100,000 increments for units.)
b. Compute the break-even point in (1) units and (2) dollars.
c. Compute the margin of safety in (1) dollars and (2) as a ratio, assuming actual
sales are $2 million.
Hint:
Prepare a CVP graph and compute break‐even point and margin of safety.
( Study Objective 6 Study Objective 7).

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