1. Contribution Margin (in unit sales) = $18
Contribution Margin (in dollar sales) : $ 270,000 (given)
Fixed Cost = $216,000
Break even point (in unit sales) = Fixed Cost ÷ Contribution margin per unit
= $216,000 ÷ 18
= 12000
Break even point (in dollar sales) = Sales price per unit × Break even (in unit)
= $30 × 12000
= $360,000
2. Contribution Margin at the break even point is the total fixed cost ($216,000)
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Answer:
Annie should increase the order size to 148 bottles per order and she will be able to save $91.85 per year.
Explanation:
we must calculate the economic order quantity (EOQ) in order to determine the size of the order that reduces costs:
EOQ = √[(2 x S x D) / H]
- S = cost per order = $35
- D = annual demand = 2,500 bottles of shampoo
- H = holding cost per unit) = $8
EOQ = √[(2 x 35 x 2,500) / 8] = √(175,000 / 8) = √21,875 = 147.90 ≈ 148 bottles of shampoo
total cost when ordering 100 bottles = (25 orders x $35) + (100/2 x $8) = $875 + $400 = $1,275
total cost when ordering 148 bottles = (16.89 orders x $35) + (148/2 x $8) = $591.15 + $592 = $1,183.15
Annie will save $1,275 - $1,183.15 = $91.85 per year