Food Services Company operates and services snack vending machines located in restaurants, gas stations, and factories. The machines are rented from the manufacturer. In addition, Tessier must rent the space occupied by its machines. The following expense and revenue relationships pertain to a contemplated expansion program of 40 machines.
Fixed monthly expenses follow:
Machine rental: 40 machines @ $51.50 $2,060
Space rental: 40 locations @ $38.80 1,552
Part-time wages to service the additional 40 machines 2,088
Other fixed costs 300
Total monthly fixed costs $6,000
Other data follow:

These questions relate to the above data unless otherwise noted. Consider each question independently.

1. What is the monthly break-even point in number of units (snacks)? In dollar sales?

2. If 40,000 units were sold, what would be the company’s net income?

3. If the space rental cost was doubled, what would be the monthly break-even point in number of units? In dollar sales?

4. Refer to the original data. If, in addition to the fixed space rent, Tessier Food Services Company paid the vending machine manufacturer $0.02 per unit sold, what would be the monthly break-even point in number of units? In dollar sales?

5. Refer to the original data. If, in addition to the fixed rent, Tessier paid the machine manufacturer $0.04 for each unit sold in excess of the break-even point, what would the new net income be if 40,000 units were sold?

Transcribed Image Text:

Per Unit (snack) Per $100 of Sales Selling price Cost of snack Contribution margin $0.20 $1.00 100% 0.80 80 20%