1. What is Panda's breakeven point for carnations under current growing practices (in number of stems...

Transcribed Image Text:

1. What is Panda's breakeven point for carnations under current growing practices (in number of stems produced per year)? Hint: it is more than their current production capacity. One reason the initial plan (in part 1) is not feasible is that production is highly labor-intensive. Panda Flowers is considering an increase in automation to lower their variable labor costs, although this will also increase fixed costs (for example, by increasing rent and/or depreciation). Specifically, assume that for any reduction in variable cost per stem, there will be a 10,000 times greater increase in fixed costs per year. In addition, the reduction of variable cost is limited to a maximum of $0.10 per stem - i.e., from $0.60 per stem down to $0.50 per stem. Further reduction below that is not possible regardless of the increase in fixed costs. For example, to decrease variable costs by $0.10, the largest possible reduction, fixed costs will increase by $1,000 (10,000x$0.10). To decrease variable costs by a tenth of a cent ($0.001), fixed costs will increase by $10 (10,000x$0.001). 1. What is Panda's breakeven point for carnations under current growing practices (in number of stems produced per year)? Hint: it is more than their current production capacity. One reason the initial plan (in part 1) is not feasible is that production is highly labor-intensive. Panda Flowers is considering an increase in automation to lower their variable labor costs, although this will also increase fixed costs (for example, by increasing rent and/or depreciation). Specifically, assume that for any reduction in variable cost per stem, there will be a 10,000 times greater increase in fixed costs per year. In addition, the reduction of variable cost is limited to a maximum of $0.10 per stem - i.e., from $0.60 per stem down to $0.50 per stem. Further reduction below that is not possible regardless of the increase in fixed costs. For example, to decrease variable costs by $0.10, the largest possible reduction, fixed costs will increase by $1,000 (10,000x$0.10). To decrease variable costs by a tenth of a cent ($0.001), fixed costs will increase by $10 (10,000x$0.001).