Hawaiian Smoothies Company purchases fruit directly from growers and produces fresh fruit smoothies and juice blends...

Hawaiian Smoothies Company purchases fruit directly from growers and produces fresh fruit smoothies and juice blends with their special recipes. Sales revenue in 2017 was $4,400,000, Variable costs were 60% of sales and fixed costs were $1,400,000. Hawaiian Smoothies is evaluating two alternatives designed to enhance profitability.

Alternative one – Hawaiian Smoothies is considering purchasing automated processing equipment for preparing pineapples more efficiently. This strategy would increase fixed costs by $300,000 but decrease variable costs to 54% of sales.

Alternative two – Hawaiian Smoothies is considering the possibility of outsourcing their fruit processing to the Pineapple Press People, LLC. This would reduce fixed costs by $300,000 but increase variable costs to 65% of sales.

Answer the following questions based on the information above:

1- What is the current break-even point in sales dollars?

2- Ignoring taxes, what dollar sales volume is currently required to obtain a profit of $500,000?

3- Ignoring taxes, at what sales volume will both alternatives provide the same profit?

4- What are two weaknesses and two strengths for each alternative that Hawaiian Smoothie should consider?

5- What do you recommend Hawaiian Smoothies do, and why?

Expert Solution

ekkarill92 answered 1 year ago

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