no hand writing please

Question #4 Breakeven Analysis (20 marks)

Fazer Caf has been successful enough to warrant an expansion into cities across Ontario. The

major hurdle in this project, however, is that Milka, Fazers main competitor, has already

penetrated most of the target markets and established itself as a market leader. Milkas main

product is chocolate bars, which it also sells to customers directly and indirectly through retail

grocery stores. In order to assess the feasibility of its expansion desires, Fazer Caf has decided

to undertake a breakeven analysis of its own business and compare it to that of Milka using

publicly available information on the company. This analysis is presented in the following

tables:

Fazer Caf:

Description Amount

Average Selling Price Per Shrove Bun $6.10

Variable Cost Per Shrove Bun Materials $1.10

Variable Cost Per Shrove Bun Labour $3.25

Fixed Costs $1,000,000

Profit Objective $425,000

Milka:

Description Amount

Average Selling Price Per Munchie $4.00

Variable Cost Per Milka Bar Materials $1.50

Variable Cost Per Milka Bar Labour $0.75

Fixed Costs $700,000

Profit Objective $250,000

Use the information above to answer the following questions. Show all your work and clearly

indicate the final answer to each question.

a) Calculate the breakeven number of units that Fazer Caf and Milka should each produce

to cover their costs, excluding profit objectives. Please round your answers to the nearest

whole number. Interpret this number in the context of comparing these two businesses. (5

marks)

b) Calculate the breakeven sales in dollars that Fazer Caf and Milka should produce to cover

their costs, including meeting profit objectives. Interpret this number in the context of

comparing these two businesses. (5 marks)

c) If both Fazer and Milka can each only produce 65% of their BEP as calculated in a) above

in a given year, what price should they each charge to cover their costs, excluding profit

objectives? Assume all other costs remain the same as shown in the tables above. (5 marks)

d) If you were a potential investor, which company would seem to be better investment? Be

sure to provide an explanation to support your statement. (5 marks)