A retired couple supplement their income by making fruit pies, which they sell to a local
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A retired couple supplement their income by making fruit pies, which they sell to a local grocery store. During the month of September, they produce apple and grape pies. The apple pies are sold for $4.50 to the grocer, and the grape pies are sold for $3.60. The couple is able to sell all of the pies they produce owing to their high quality. They use fresh ingredients. Flour and sugar are purchased once each month. For the month of September, they have 1,200 cups of sugar and 2,100 cups of flour. Each apple pie requires 11⁄2 cups of sugar and 3 cups of flour, and each grape pie requires 2 cups of sugar and 3 cups of flour. |
a
Here is a tip:
Break-even quantity refers to the minimum quantity level at which the firm is able to cover its both fixed and variable costs.
Explanation
Calculate the break-even point when the selling price of pens is $1.
Break-even represents the situation when the company's revenue and expense are equal and is calculated by dividing the fixed cost by the difference between the selling price and variable cost.
\begin{aligned}{\rm{Break - Even Quantity}} &= \frac{{{\rm{Fixed Cost}}}}{{{\rm{Selling Price}} - {\rm{Variable Cost}}}}\\ &= \frac{{\$ 25,000}}{{\$ 1 - \$ 0.37}}\\ &= 39,682.54{\rm{ units}}\end{aligned}
Break−EvenQuantity=SellingPrice−VariableCostFixedCost=$1−$0.37$25,000=39,682.54units
Verified Answer
39682.54 units.
b
Here is a tip:
Selling price of a product is the price at which the product is sold. It may or may not be equal to the marked price of the same product.
Explanation
Calculate the selling price of the pens by dividing the sum of specified profit, fixed cost, and the product of demand by the variable cost by demand.
\begin{aligned} \text { Selling Price } &=\frac{\text { Specified Profit }+\text { Fixed Cost }+(\text { Demand } \times \text { Variable Cost })}{\text { Demand }} \\ * &=\frac{15,000+25,000+(30,000 \times 0.37)}{30,000} \\ &=1.70 \end{aligned} Selling Price ∗= Demand Specified Profit + Fixed Cost +( Demand × Variable Cost )=30,00015,000+25,000+(30,000×0.37)=1.70
Verified Answer
$1.70
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