Question

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 grapes are $0.10 per pound.

b. Calculate the profit or loss on 12,000 bags and on 25,000 bags.

Short answer

A loss of $20,000 is incurred by the company on selling 12,000 bags, whereas, a profit of $45,000 is earned by the company on selling 25,000 bags.

Step-by-step solution

Profit or loss on 12,000 bags

$\begin{array}{rcl}\mathrm{Profit}/\left(\mathrm{Loss}\right)& =& \left(\mathrm{Quantity}\times \left(\mathrm{Price}\mathrm{per}\mathrm{unit}-\mathrm{Variable}\mathrm{cost}\mathrm{per}\mathrm{unit}\right)\right)-\mathrm{Fixed}\mathrm{cost}\\ & =& \left(12,000\times \left(\$10-\$5\right)\right)-\$80,000\\ & =& \left(\$20,000\right)\end{array}$

Profit or loss on 25,000 bags

$\begin{array}{rcl}\mathrm{Profit}/\left(\mathrm{Loss}\right)& =& \left(\mathrm{Quantity}\times \left(\mathrm{Price}\mathrm{per}\mathrm{unit}-\mathrm{Variable}\mathrm{cost}\mathrm{per}\mathrm{unit}\right)\right)-\mathrm{Fixed}\mathrm{cost}\\ & =& \left(25,000\times \left(\$10-\$5\right)\right)-\$80,000\\ & =& \$45,000\end{array}$