Question

Zan Azlett and Angela Zesiger have joined forces to start​ A&Z Lettuce​ Products, a processor of packaged shredded lettuce for institutional use. Zan has years of food processing​ experience, and Angela has extensive commercial food preparation experience. The process will consist of opening crates of lettuce and then​ sorting, washing,​ slicing, preserving, and finally packaging the prepared lettuce.​ Together, with help from​ vendors, they think they can adequately estimate​ demand, fixed​ costs, revenues, and variable cost per bag of lettuce. They think a largely manual process will have monthly fixed costs of $ 36 comma 000 and variable costs of $ 1.60 per bag. A more mechanized process will have fixed costs of $ 72 comma 000 per month with variable costs of $ 1.00 per bag. They expect to sell the shredded lettuce for $ 2.75 per bag.

​a) The​ break-even quantity in units for the manual process​ = ________ bags ​(round your response to the nearest whole​ number).

​b) The revenue for the manual process at the​ break-even quantity​ = ________ (round your response to the nearest whole​ number).

c) The​ break-even quantity in units for the mechanized process​ =_______ bags ​(round your response to the nearest whole​ number).

d) The revenue for the mechanized process at the​ break-even quantity​ =______ (round your response to the nearest whole​ number).

e) For monthly sales of 65,000 bags, for the option with manual​ processing, A&Z Lettuce Products will have a profit of $______ (round your response to the nearest whole number and include a minus sign if the profit is​ negative).

​f) For monthly sales of 65,0000 ​bags, for the option with mechanized​ processing, A&Z Lettuce Products will have a profit of $_____ (round your response to the nearest whole number and include a minus sign if the profit is​ negative).

​g) The quantity at which Zan and Angela are going to be indifferent between the manual and mechanized process​ = ______ bags round your response to the nearest whole​ number).

​h) If the demand exceeds the point of​ indifference, then Zan and Angela should prefer the option with (mechanized/manual) processing.

If the demand stays below the point of​ indifference, then Zan and Angela should prefer the option with (mechanized/manual) processing.

Answer 1

a) Let the break even point for the manual process be X, then

Total Cost = Total Revenue

36000 + 1.6*X = 2.75*X

1.15*X = 36000

X = 31304 Units Approximately

b) Revenue for Manual Process = Number of Units * Selling Price

= 31304 * 2.75

= $86086

c) Let the break even point for the mechanised process be Y, then

72000 + 1*Y = 2.75*Y

1.75*Y = 72000

Y = 42353 Units Approximately

d) the revenue for the mechanized process = Volume * Selling price

= 42353*2.75

= $116471

e) If the volume be 65000 for the manual process,

Profit = Revenue - Expense

= 2.75*65000 - (36000 + 1.6*65000)

= $38750

f) If the volume be 65000 for the mechanized process

Profit = 2.75*65000 - (72000 + 1*65000)

= $41750

g) Let the point of Indifference between the processes be Z, then

Total Cost for Manual = Total cost for Mechanized

36000 + 1.6*Z = 72000 + 1*Z

0.6*Z = 36000

Z = 60000 Units

h)

If the demand exceeds the point of​ indifference, then Zan and Angela should prefer the option with mechanized processing.

If the demand stays below the point of​ indifference, then Zan and Angela should prefer the option with manual processing.