Task: Fruit-Pit Company produces a single product. The results of the company's operations for a typical MONTH are presented in contribution format as follows:
Sales $540,000
Variable expenses $360,000
Contribution margin $180,000
Fixed expenses $120,000
Net operating income $60,000
The company produced and sold 120,000 gallons of product during the month. (There were no beginning or ending inventories)
A. Please teach me to find:
1. The break-even sales in gallons.
2. The break-even sales in dollars.
3. The sales in gallons that would be required to produce net operating income of $90,000.
4. The margin of safety (MOS) in dollars.
B. An important part of processing is performed by a machine that is currently being leased for $20,000 per MONTH. Fruit-Pit Company has been offered a business-option whereby it would pay $0.10 incentive per gallon processed by the machine rather than the monthly lease.
1. Should the company choose the lease or the royalty plan?
2. Under the incentive plan compute break-even point in gallons.
3. Under the incentive plan compute break-even point in dollars.
4. Under the incentive plan determine the sales in gallons that would be required to produce net operating income of $90,000