Swift Start is a gas tank additive guaranteed to put a "tiger in your tank", as Exxon commercials once boasted. Its production has the following fixed and variable costs. It is priced at $5.00 per gallon to begin with:
Fixed costs (per year) Variable Costs per gallon
Rent $12000 Volatile Fluids $1.00
Utilities 1800 Mfg. Labor .10
Managerial salaries 16800 Advertising .25
Computer services 19200 Packaging .15
Other fixed expense 1080 Inert ingredients .50
Total fixed $50880 Total $2.00
1. What is the annual breakeven production quantity (use above data, show work)?
2. What revenue would the sale of the breakeven quantity for $5 per gallon generate?
3. How many gallons (at $5 each) must be sold to earn $100000 above breakeven? (show your calculations)
4. Management believes that only 25000 gallons can be sold in a year. What price per gallon needs to be charged to pay the fixed costs and earn $100000 more (variable costs remain as initially given)(show your work)?
5. What is the Contribution Margin Ratio (CMR) if the price per gallon is $7.00
6. If a price of $9.00 per gallon is charged and it is desired to earn $100000 above fixed costs, what will the DOL be if only 25000 gallons is sold?