Question

Tyson Foods is the largest U.S. beef and chicken​ supplier, processing more than​ 100,000 head of cattle and​ 40-plus million chickens weekly. Primary distribution channels are supermarket meat departments.​ However, the company is now expanding distribution into convenience stores. There are almost​ 150,000 gas stations and convenience stores where the company would like to sell hot Buffalo chicken bites near the checkout. This is a promising​ channel, as sales are growing considerably at these retail outlets and profit margins on prepared foods are higher than selling raw meat to grocery stores. Tyson will have to hire eighteen more sales representatives at a salary of ​$45 comma 000 each to expand into this distribution channel because many of these types of stores are independently owned. Each convenience store is expected to generate an average of​ $50,000 in revenue for Tyson. If​ Tyson's contribution margin is 30 percent on this​ product, what increase in sales will it need to break even on the increase in fixed costs to hire the new sales​ reps?

Answer 1

Answer:

$810,000

Explanation:

The computation is shown below:

The increase in fixed cost is

= Salary of each sales representative × number of sales representatives hired

=  $45,000 × 18

= $810,000

Now the increase in sales needed for break even is

= Increase in fixed cost ÷ Contribution margin ratio

= $810,000 ÷ 30%

= $2,700,000

As we know that break even sales is computed by dividing the fixed cost by the contribution margin ratio and we applied the same