Practice 2: Pet Park International sells cat food and dog food. Its monthly fixed costs average $620,000 Cat food sales represent 80 % of the company's total revenue. Dog food sales constitute the remaining 20%. The company has provided the following information expressed ona per- case basis: Selling Contribution Price Margin $16 $9 Cat food Dog food $40 $30 (a) The total monthly sales revenue required to break-even is $ (Rounded) (b) The total monthly sales revenue required to eam an operating income of $135,000 is (c) The company's margin of safety at a monthly sales level of $2,500,000 is $ (d) Pet Park is trying to improve its market position with respect to dog food and would ideally like to become more competitive in this area. They have the opportunity to invest in a piece of equipment (cost: $3,000,000, useful life is 5 years with no salvage value) that would reduce variable costs of manufacturing the dog food line from $21/case to $18/case. Pet Park believes that This would increase demand of their dog food to the extent that they could expect the total revenue split to be 60 % ( cat food) to 40% (dog food). Should they do it?
Practice 2: Pet Park International sells cat food and dog food. Its monthly fixed costs average $620,000 Cat food sales represent 80 % of the company's total revenue. Dog food sales constitute the remaining 20%. The company has provided the following information expressed ona per- case basis: Selling Contribution Price Margin $16 $9 Cat food Dog food $40 $30 (a) The total monthly sales revenue required to break-even is $ (Rounded) (b) The total monthly sales revenue required to eam an operating income of $135,000 is (c) The company's margin of safety at a monthly sales level of $2,500,000 is $ (d) Pet Park is trying to improve its market position with respect to dog food and would ideally like to become more competitive in this area. They have the opportunity to invest in a piece of equipment (cost: $3,000,000, useful life is 5 years with no salvage value) that would reduce variable costs of manufacturing the dog food line from $21/case to $18/case. Pet Park believes that This would increase demand of their dog food to the extent that they could expect the total revenue split to be 60 % ( cat food) to 40% (dog food). Should they do it?
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter16: Cost-volume-profit Analysis
Section: Chapter Questions
Problem 6CE
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I know this has to do with oportunity cost and the associated risk, but I'm not sure how to make a detemrination. This is question #4 on the attachement. I alreay completed the first 3 questions.
- Pet Park is trying to improve its market position with respect to dog food and would ideally like to become more competitive in this area. They have the opportunity to invest in a piece of equipment (cost: $3,000,000, useful life is 5 years with no salvage value) that would reduce variable costs of manufacturing the dog food line from $21/case to $18/case. Pet Park believes that This would increase demand of their dog food to the extent that they could expect the total revenue split to be 60% (cat food) to 40% (dog food). Should they do it?
_____________________________________
Information:
Pet Park International sells cat food and dog food. Its monthly fixed costs average $620,000. Cat food sales represent 80% of the company's total revenue. Dog food sales constitute the remaining 20%. The company has provided the following information expressed on a per-case basis:
|
Selling |
Contribution |
|
Price |
Margin |
Cat food |
$40 |
$16 |
Dog food |
$30 |
$9 |
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