Question:

General Mills makes wheaties, cheerios, betty crocker cake mixes, and other food products. the product manager of a new geeral mills cereal has determined that the appropriate wholesale price for a carton of the cereal is $48. Fixed costs of the production and marketing of the cereal is $15,000,000.00.

1) the product manager estimates that she can sell 800,000 cartons at the $48 price. What is the largest variable cost per carton that can be paid and still achieve a profit of $1,000,000.00.

2) Suppose the variable cost is $30 per carton. What profit (or loss) would be expected?


This is how i answered -

#1
Given - Selling price - $48; Fixed cost - $15,000,000; units - 800,000; profit - $1,000,000 Find the vriable cost per unit

Using the formula: Sales - Variable cost - Fixed Cost = Operating Income/Profit
(48 x 800,000) - (vc x 800,000) - 15,000,000 = 1,000,000
38,400,000 - 800,000vc - 15,000,000 = 1,000,000
38,400,000 - 1,000,000 - 15,000,000 = 800,000vc
22,400,000/800,000 = vc
vc = 28 units

#2
If VC is $30 per carton; Find Profit/Loss

Sales - VC - FC - Profit/Loss
(48 x 800,000) - (30 x 800,000) - 15,000,000 = P/L
38,400,000 - 24,000,000 - 15,000,000 = P/L
- 600,000 = P/L

There will be a loss of (600,000)


Is this correct?

Yes, it's all correct. Good job. :-)