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Nicholas Coffee roasts coffee the old-fashioned way (in gas-fired, rotating barrel roasters). It is selling its gourmet coffee beans at $20 per pound. Variable costs per pound are $8, and it has fixed cost of $840,000 per year.
1 Find its breakeven quantity in pounds/year, using the above data.
2 Nicholas is contemplating installation of digitally-controlled air-blown roasters. This will increase fixed cost to $1,200,000 per year, but it will lower variable cost to $5 per pound. If it installs the new roasters, what will be its breakeven quantity in pounds/year if it maintains its selling
3 Express the breakeven quantity in (2) in dollar sales.
4 Nicholas does not believe it can sell more than 70000 pounds/year. What will it need to increase its price to if it is to breakeven at 70000 pounds per year, after installing the new air-blown roasting facilities?
5 What is the Contribution Margin Ratio (CMR), using $5 per pound variable cost and a price of $22.14?
6 What is the DOL if Nicholas is lucky and sells 80000 pounds per year at $22.14 per pound (after installing the new air-blown roasting facilities)?
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