Question

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?

Answer 1