Question

Each jar of jelly needs as ingredients 1 pound of quinces, 1 pound of sugar, and 2 dashes of spices. The quinces cost $0.80/lb; the sugar costs $0.12/lb. and the spices cost $0.10/dash. The processing cost for the jelly is $0.25/jar for labor at minimum cost and $1000/hr for utilities and overhead. The plant runs at minimum average cost at 1,000 cases per hour. There are 24 jars of jelly per case. Jars cost $0.10 each and the box for a case costs $0.25.

1. The break-even price for Quinn’s Quince jelly in $/case.

2. The target margin price if the Quinn’s Quince Jelly Company wants to achieve a 40 percent gross profit margin (again in $/case)

Answer 1

One jar of jelly needs = 1 pound of quinces, 1 pound of sugar, and 2 dashes of spices.

Production Cost for 24 jars (1 case) = cost of (24 pound of quinces + 24 pound of sugar + 48 dashes of spices) + 24 x processing cost for the jelly + 24 x cost of jar + cost of the box for a case

= 24*0.80 + 24*0.12 + 48*0.10 + 24*0.25 + 24*0.10 + 0.25 = $35.53 per case

Fixed cost = $1000

Minimum AC = 1000 cases in one hour = 24000 jars per hour.

Variable cost per case = 35.53*1000 = $35530. Total cost = fixed cost + variable cost = 1000 + 35530 = $36530

a) Break even price is equal to the average cost of 1000 cases and this equal to 36530/1000 = $36.53 per case.

Gross profit margin = 40%

40% = gross profit / sales revenue

40% = (Revenue – cost)/revenue

40% = (P*1000 – 36530)/P*1000

400P = 1000P – 36530

This gives Price per case = $60.88.