Problem
The Java Company buys raw coffee beans from Columbia. After roasting and grinding the beans, Java sells ground coffee in 5-pound tins to restaurants for $15 per tin. Current variable cost to produce a 5-pound tin is $10.
A few years ago, Java purchased a mixing machine that can add a liqueur flavour to the ground coffee, but Java did not sell liqueur flavour coffee due to a low demand. The mixing machine has been depreciated at the rate of $500 per month and has no resale value. Recently, liqueur-flavour coffee becomes popular, and Java can sell it in one-pound bags for $7. Costs per one-pound bag of flavoured coffee would be:
Ground coffee (one pound) $2.00
Other raw materials 1.00
Direct labour .50
Variable overhead .95
Variable selling .30
In addition, advertising costs for the flavoured coffee would be $10,000 per month and the company needs to pay Jane Starbuck $2,500 per month to supervise the production of the flavoured coffee (her only responsibility if hired).
Task
What is the minimum number of pounds of the liqueur-flavour coffee that must be sold each month if Java decides to sell it?