Question

Boston’s Dairy has just opened its main yogurt factory in upstate Massachusetts. This main factory can produce 3,500 boxes of yogurt monthly (each box contains twelve 6-oz cups). Due to overwhelming demand for the company’s product, Boston’s Dairy has signed a contract to rent a new factory, which can produce up to 8,000 boxes per month. The monthly total fixed costs are $40,000 in the main factory and $16,000 in the new factory. The variable production cost of yogurt is $4.50 per box in the main factory. The variable production cost in the new factory is $6.0 per box as materials have to be redistributed from the main factory. The average selling price is $15, and the variable selling expense is $1 per box, which is the same for all factories. In addition, Boston’s Dairy plans to pay its sales force $0.80 per box as added bonus for every box sold above the break-even point. How many boxes does the company have to produce and sell in order to earn a net operating income of $10,000 per month (round all decimal up to one box)

Answer 1

	Desired level of $ 10000 we have to produce 8049 boxes
		At own factory	New factory at BEP	Value in @ $10000 desired profit
	Selling price	$15	$15
	Variable costs	$4.50	$6.00
	Variable selling expenses	$1.00	$1.00
	Variable bonus	$0.00
	Total variable cost	$5.50	$7.00
	Contribution (1-6)	$9.50	$8.00			`
	Contribution in value	33250 (9.5 X 3500 boxe)	22750($8 X 2844 boxes)	32752.8	(4549 boxes X$7.2)
	Fixed cost	40000	16000	16000
	profit or (loss)	.=6750(33750-40000)	.= 0 (22750-16000-6750)	$16,750	($32750-16000)
	Desired profit		6750	$10,000	(16750-$6750)
1	BEP level is 6344 boxes that is 3500 from existing plant and 2844 boxes from new plant
2	till the 6344 units level we don’t give the selling bonus that is $0.8 per box selling
3	For BEP we have considered contribution $8 per box for desired profit $7.2 per box and for 9.5 for existing factory
4	the existing plant is in loss $6750, to get BEP we have to recover the lose from existing business so to recover loss and to get BEP we have to produce 6344 boxes
5	At the desired level of $10000 units, we have to consider the loss from existing business that is $6750 have to recover while calculating desire profit , so post adjusted desire profit is 16750 then we will get the desired profit of $1000 @ 8049 boxes level
6	we are producing 3500 boxes from existing plant and the remaining 4549 boxes from new plant
7	to get the break even and desired profit we will produce 1st 3500 boxes from existing plant and remaining balance from new plant
8	Units required for desired profit= Fixed cost + Desired profit/ contribution per unit
	.=(16000+10000+6750)/7.2	4549 boxes
		3500 boxes	2844	.=(16000+6750)/8
	Units at desired level	8049 boxes	3500	Old factory
	Units at BEP	0	6344	Total BEP Boxes