Question

United Snack Company sells 50-pound bags of peanuts to university dormitories for \(20 a bag. The fixed costs of this operation are \)176,250, while the variable costs of peanuts are $0.15 per pound.

b. Calculate the profit or loss on 7,000 bags and on 20,000 bags.

Short answer

The loss incurred by the company on selling 7,000 bags amounts to $88,750 and the profit earned by the company on selling 20,000 bags amounts to $73,750.

Step-by-step solution

Profit or loss on 7,000 bags

$\begin{array}{rcl}\mathrm{Profit}/\left(\mathrm{Loss}\right)& =& \left(\mathrm{Quantity}\times \left(\mathrm{Price}\mathrm{per}\mathrm{unit}-\mathrm{Variable}\mathrm{cost}\mathrm{per}\mathrm{unit}\right)\right)-\mathrm{Fixed}\mathrm{cost}\\ & =& \left(7,000\times \left(\$20-\$7.50\right)\right)-\$176,250\\ & =& \left(\$88,750\right)\end{array}$

Profit or loss on 20,000 bags

$\begin{array}{rcl}\mathrm{Profit}/\left(\mathrm{Loss}\right)& =& \left(\mathrm{Quantity}\times \left(\mathrm{Price}\mathrm{per}\mathrm{unit}-\mathrm{Variable}\mathrm{cost}\mathrm{per}\mathrm{unit}\right)\right)-\mathrm{Fixed}\mathrm{cost}\\ & =& \left(20,000\times \left(\$20-\$7.50\right)\right)-\$176,250\\ & =& \$73,750\end{array}$