Sid Simon wants to cash in on the increased demand for ethanol. Accordingly he purchased a corn farm in Iowa. Simon believes his corn crop can be sold to an ethanol plant for $4.80 per bushel. Variable cost associated with growing and selling a bushel of corn is $3.80. Simon’s annual fixed cost is $132,000.
a. What is the break-even point in sales dollars and bushels of corn? If Simon’s farm is 1,200 acres, how many bushels must he produce per acre to break even?
b. If Simon actually produces 174,000 bushels, what is the margin of safety in bushels, in dollars, and as a percentage?