A farmer is considering producing turfgrass seed. She estimates the total fixed cost (which are difficult to allocate) to be about $750,000 and when 20,000 bags are produced the variable cost is $1,500,000.
a) How many bags of seed must the farmer sell to break even? Assuming the producer can sell the seed for $125 per bag.
b) What is the breakeven price? The farmer indicates she will probably sell about 30,000 bags.
c) Your insurance firm has told you that your insurance will be going up by 16,000 in the industry. Show the effect of this increase in the breakeven values.
d) Describe three uses of the breakeven analysis concept.