Agriculture Reference
In-Depth Information
tomatoes per year and their average selling price is about $1.50/lb. Their cost of goods
sold equals about $0.73/lb and their additional costs that seem to vary with sales amount
to about $0.23/lb.
Questions
1.
Calculate the breakeven point for True Red Greenhouse in dollars and in pounds.
2.
The owners, Bob and Julie Collins, have about $100,000 invested in the business. Their
desired rate of return on this investment is 10 percent. What volume of business (again,
in dollars and in pounds) must be generated to reach this ROE goal?
3.
Bob expects to eliminate his part-time labor, because he will work in the greenhouse full
time, which amounts to a reduction in variable costs of $0.17/lb. With no other changes
to the base situation, what impact would this have on the business? Show your answer
in dollars and in pounds.
4.
Bob and Julie are considering an upgrade to some of their watering equipment and they
expect the capital investment to cost about $10,000, including installation. Bob assumes
this new equipment can be depreciated over a fi ve-year period. If the depreciation for
the equipment is equal each year and there is no salvage value, what additional sales will
True Red need for this to be a profi table decision? Assume no other changes will be
made to the base situation. Answer this question in both pounds and in dollars.
5.
Bob and Julie are interested in ways for True Red to increase sales. One change they are
considering is to reduce the selling price for their tomatoes. They hope this change will
increase sales in the near term and help them maintain sales later if a competitor should
enter the market. What would the impact of a 10 percent price reduction have on the
business? Assume no other changes are made to the base situation in Question 1. Answer
this question in dollars and pounds.
