Healthy Foods, Inc., sells 50- pound bags of grapes to the military for $10 a bag. The fixed costs of this operation are $80,000, while the variable costs of the grapes are $.10 per pound. a. what is the break-even point in bags b. calculate the profit of loss on 12,000 bags and on 25,000 bags. c. what is the degree of operating leverage change as the quantity sold increases? d. If healthy foods has an annual interest expense of $10,000, calculate the degree of financial leverage at both 20,000 and 25,000 bags e. what is the degree of combined leverage at both sales levels.

A. What is the break even point in bags.

The break even point in bags will equal the fixed cost divided by the unit contribution margin, which the unit contribution margin will equal the selling price per unit subtracted by the variable cost per unit. Therefore my equation is $10-(50*0.10) will equal 10-5 which equal $5. So, the break even point will equal the operation fixed cost which is 80,000 and I divide that by 5(80,000/5) will equal 16,000.

B. Calculate the profit of loss on 12,000 bags and 25,000 bags.

The desired sales in the unit will equal the fixed cost plus the desired profit divided by the unit contribution margin. So, 12,000 will equal the operation fixed cost which is 80,000 plus the desired profit divided by 5. Therefore, 80,000 plus the desired profit will equal 60,000. The desired profit/loss will equal 80,000-60,000 which will give us the net loss of 20,000. The next equation I will take 25,000 that will equal the operation fix cost which is 80,000 plus the desired profit divided by 5. So, I have 125,000 which will equal the fixed cost operation which is 80,000 plus the desired profit. Therefore, the desired profit will equal 125,000 subtracted from 80,000 gives us a total of 45,000.

C. What is the degree of operation leverage at 20,000 bags and at 25,000 bags?