Question

California​ Gardens, Inc.,​ prewashes, shreds, and distributes a variety of salad mixes in​ 2-pound bags. Doug​ Voss, Operations​VP, is considering a new​ Hi-Speed shredder to replace the old​machine, referred to in the shop as​ "Clunker." Hi-Speed will have a fixed cost of $85,000 per month and a variable cost of​$1.25 per bag. Clunker has a fixed cost of only ​$44,000 per​month, but a variable cost of​ $1.75. Selling price is​ $2.50 per bag.

a) What is the crossover point in units​ (point of​indifference) for the​ processes?

The crossover point is XX units. ​(Round your response to the nearest whole​ number.)

​b) What is the monthly profit or loss if the company changes to the​ Hi-Speed shredder and sells 60,000 bags per​ month?

The monthly profit or loss if the company changes to the​Hi-Speed shredder and sells 60,000 bags per month is ​$ XX. ​(Round your response to the nearest dollar and include a minus sign if​ necessary.)

​c) What is the monthly profit or loss if the company stays with Clunker and sells 60,000 bags per​ month?

The monthly profit or loss if the company stays with Clunker and sells 60,000 bags per month is ​$ XX. ​(Round your response to the nearest dollar and include a minus sign if​necessary.)

Answer 1

Answer:

The answer is. Q is 82,000 units ,the company will make a loss of $ -10000 if the company changes to Hi speed, if the company stays with clunker it will make a profit of $1,000

Explanation:

a) Clunker. Hi speed

Fixed cost. $44,000. $85,000

Variable cost. 1.75. 1.25

Q (output in indifference point / cross over point) = FC of Hi speed - FC of Clunker/VC of Clunker - VC of Hi speed

FC of Clunker + VC of Clunker = FC of Hi speed + VC of Hi speed

44,000 + 1.75Q = 85,000 + 1.25Q

Collect like terms

1.75Q - 1.25Q = 85,000 - 44,000

0.5Q = 41,000

Q = 41,000/0.5

Q = 82,000 units

(b)

Since the sellingprice is $2.50 per bag, Revenue will be 2.50 × 60,000 = 150,000

Income Statement

Dr. Cr

$ $

Revenue. 150,000

Variable cost (1.25 × 60,000) 75,000

Add:Fixed cost 85,000

-------------

(160,000)

Profit/Loss. -10,000

---------------- --------------------

150,000. 150,000

-------------------- -----------------------

If the company changes to Hi speed, it will make a loss of $10,000

(c)

Dr. Cr

$ $

Revenue. 150,000

Variable cost (1.75 × 60,000) 105,000

Add: Fixed cost. 44,000

---------------

(149,000)

Profit /Loss. 1,000

------------------ ---------------------

150,000. 150,000

---------------------- -----------------------

If the company stays with clunker, it will make a profit of $1,000