Question

Cesar's Bottlers bottles soft drinks in a factory that can operate one shift, two shifts, or three shifts per day. Each shift is eight hours long. The factory is closed on weekends. The sales price of $4 per case bottled and the variable cost of $2.90 per case remain constant regardless of volume. Cesar's Bottlers can increase volume by opening and staffing additional shifts. The company has the following three choices. Daily Volume Range (Number of Cases Bottled)   Total Fixed Costs per Day 1 Shift   0–2,000   $   1,950   2 Shifts   2,001–3,600       3,710   3 Shifts   3,601–5,000       5,090   Required:

a. Calculate the break-even point(s).

b-1. Calculate the profit (or loss) for each alternative, assuming Cesar’s Bottlers can sell all the units it can produce.

b-2. Should Cesar's Bottlers operate at one, two, or three shifts?

Answer 1

Question 1

Calculation of Break Even Point for all the Three Alternative

As there are different options available with different shifts so break Even Point will be different for all the cases

Particulars	1 Shifts	2 Shifts	3 Shifts
Total Fixed Costs	1,950	3,710	5,090
÷ Contribution Margin per Unit	1.10	1.10	1.10
Break Even Point in Units	1,773 Units	3,373 Units	4,627 Units

Particulars	Amount
Sales Price per Unit	4
Less : Variable Costs per Unit	(2.90)
Contribution Margin per Unit	1.10

Question 2

Part A

As it is clearly mentioned that any amount of Production will be sold then the company will produce highest production with adaption of an alternative

Particulars	1 Shifts	2 Shifts	3 Shifts
Sales in Units	2,000	3,600	5,090
* Contribution Margin per Unit	1.10	1.10	1.10
Contribution Margin	2,200	3,960	5,599
Less: Fixed Costs	(1,950)	(3,710)	(5,090)
Net Operating Income / (Loss)	250	250	509

Part B

Cesar should operate at 3 Shifts becuase it is having the highest Profit at that stage.