Question

United Snack Company sells 50-pound bags of peanuts to university dormitories for $20 a bag. The fixed costs of this operation are $176,250, while the variable costs of peanuts are $0.15 per pound. What is the break-even point in bags? Calculate the profit or loss on 7,000 bags and on 20,000 bags.

Answer 1

The break-even point for United Snack Company is 14,100 bags. The company would incur a loss of $55,250 on 7,000 bags and would earn a profit of $255,000 on 20,000 bags.

Step-by-step explanation:

The student's question is related to determining the break-even point in bags for United Snack Company, as well as calculating the profit or loss on 7,000 and 20,000 bags. To start, we need to calculate the break-even point using the formula:

Break-Even Point in Units (Bags) = Fixed Costs / (Selling Price per Unit - Variable Cost per Unit)

Given the fixed costs of $176,250, a selling price of $20 per bag, and variable costs of $0.15 per pound for a 50-pound bag, the calculations are:

• Variable Cost per Bag = 50 * $0.15 = $7.50
• Contribution Margin per Bag = $20 - $7.50 = $12.50
• Break-Even Point in Bags = $176,250 / $12.50 = 14,100 bags

Next, to calculate profit or loss:

• Profit or Loss = (Selling Price per Bag * Number of Bags Sold) - (Variable Cost per Bag * Number of Bags Sold) - Fixed Costs
• Profit or Loss on 7,000 bags = ($20 * 7,000) - ($7.50 * 7,000) - $176,250 = $55,250
• Profit or Loss on 20,000 bags = ($20 * 20,000) - ($7.50 * 20,000) - $176,250 = $255,000

Therefore, the break-even point for United Snack Company is 14,100 bags, profit on 7,000 bags would be -$55,250 (which is actually a loss), and profit on 20,000 bags would be $255,000.