**** I need help with question 4/5/6**** Nicholas Coffee roasts coffee the old-fashioned way (in gas-fired, rotating barrel roasters).  It is selling its gourmet coffee beans at $20 per pound.  Variable costs per pound are $8, and it has fixed cost of $840,000 per year.         1 Find its breakeven quantity in pounds/year,  using the above data.   2 Nicholas is contemplating installation of digitally-controlled air-blown roasters.  This will increase fixed cost to $1,200,000 per year, but it will lower variable cost to $5 per pound.  If it installs the new roasters, what will be its breakeven quantity in pounds/year if it maintains its selling price at $20 per pound?   3 Express the breakeven quantity in (2) in dollar sales.   4 Nicholas does not believe it can sell more than 70000 pounds/year.  What will it need to increase its price to if it is to breakeven at 70000 pounds per year, after installing the new air-blown roasting facilities?    5 What is the Contribution Margin Ratio (CMR), using $5 per pound variable cost and a price of $22.14?    6 What is the DOL if Nicholas is lucky and sells 80000 pounds per year at $22.14 per pound (after installing the new air-blown roasting facilities)?

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Asked Aug 13, 2019
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**** I need help with question 4/5/6****

 

Nicholas Coffee roasts coffee the old-fashioned way (in gas-fired, rotating barrel roasters).  It is selling its gourmet coffee beans at $20 per pound.  Variable costs per pound are $8, and it has fixed cost of $840,000 per year.

         

1 Find its breakeven quantity in pounds/year,  using the above data.

 

 

 

2 Nicholas is contemplating installation of digitally-controlled air-blown roasters.  This will increase fixed cost to $1,200,000 per year, but it will lower variable cost to $5 per pound.  If it installs the new roasters, what will be its breakeven quantity in pounds/year if it maintains its selling price at $20 per pound?

 

 

 

3 Express the breakeven quantity in (2) in dollar sales.

 

 

 

4 Nicholas does not believe it can sell more than 70000 pounds/year.  What will it need to increase its price to if it is to breakeven at 70000 pounds per year, after installing the new air-blown roasting facilities?

 

 

 

 

5 What is the Contribution Margin Ratio (CMR), using $5 per pound variable cost and a price of $22.14?

 

 

 

 

6 What is the DOL if Nicholas is lucky and sells 80000 pounds per year at $22.14 per pound (after installing the new air-blown roasting facilities)?

 

 

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Expert Answer

Step 1

4. Breakeven price can be calculated as follows:

Fixed cost Quantity(P- Unit varible cost)
1,200,000 70,000 (P-5)
P-5 17.14
P 22.14
Thus, the value of price for break- even is $22.14
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Fixed cost Quantity(P- Unit varible cost) 1,200,000 70,000 (P-5) P-5 17.14 P 22.14 Thus, the value of price for break- even is $22.14

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Step 2

 5.

Contribution Margin Ratio (CMR) can be calculated as follows:

...
Sales Variable cost
Contribution margin ratio
Sales
22.14 5
22.14
0.77
Thus, the value of contribution margin ratio is 0.77
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Sales Variable cost Contribution margin ratio Sales 22.14 5 22.14 0.77 Thus, the value of contribution margin ratio is 0.77

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