Healthy Foods Inc. Essay

Healthy Foods Inc.                                                                                                       1

Healthy Foods Inc.                                                                                                      
Robert Johnson
    FIN /200 -   Introduction To Finance: Harvesting The Money Tree
8/12/2011
Instructor: Joseph Lane

Healthy Foods Inc.                                                                                                       2

Healthy Foods, Inc., sells 50-pound bags of grapes to the military for $10 a bag.
The fixed costs of this operation are $80,000, while the variable costs of the
grapes are $.10 per pound.

a. What is the break-even point in bags?
    $80, 000     $80,000
      BE = $10-$5     =     $5       = 16,000 bags

b. Calculate the profit or loss on 12,000 bags and on 25,000 bags.
       
Total Variable     Fixed Costs   Total Costs   Total Revenue     Operating Income
Costs (TVC)             (FC)                 (TC)                 (TR)                       (loss)
(12,000 x $5)                                                   (12,000 x $10)
$60,000               $80,000           $140,000       $120,000                   ($20,000)  

(25,000 x $5)                                                   (25,000 x $10)
  $125,000           $80,000             $205,000         $250,000                 $45,000      

c. What is the degree of operating leverage at 20,000 bags and at 25,000 bags?
Why does the degree of operating leverage change as the quantity sold
increases?
          20,000($10 - $5)                 $100,000
DOL= 20,000($10-$5) - $80,000 = $20,000 = 5

                25,000($10 - $5)             $125,000
DOL = 25,000($10-$5)- $80,000 =   $45,000 = 2.8

Because the father away you get from the breakeven point the smaller the percentages is going to be that is why 20,000 bags has a higher percentage than 25,000 bags.

d. If Healthy Foods has an annual...