Q2) The KFU's Company is currently operating its mill six days a week, 24 hours a...

Transcribed Image Text:

Q2) The KFU's Company is currently operating its mill six days a week, 24 hours a day, on three shifts. At current prices, the company could easily obtain a sufficient volume of sales to take the entire output of a seventh day of operation each week. The mill's practical capacity is 7,000 hundred weight of flour per day. Note that Flour sells for SAR 13 a hundred weight (cwt.) and the price of wheat is SAR 5.0 a bushel. About 2.35 bushels of wheat are required per cwt. of flour. Fixed costs now average SAR 5,530 a day, or SAR 0.79 per cwt. The average variable cost of mill operation, almost entirely wages, is SAR 0.5 per cwt. With Sunday operation, wages would be doubled for Sunday work, which would bring the variable cost of Sunday operation to SAR 0.9 per cwt. Total fixed costs per week would increase by SAR 500 (or SAR 33,333) if the mill were to operate on Sunday. (a) Using the information provided, compute the break-even volumes for sixday and seven- day operation. (b) What are the marginal contribution rates for six-day and seven-day operation? (c) Compute the average total cost per cwt. for six-day operation and the net profit margin per cwt. before taxes. (d) Would it be economical for the mill to operate on Sundays? Q2) The KFU's Company is currently operating its mill six days a week, 24 hours a day, on three shifts. At current prices, the company could easily obtain a sufficient volume of sales to take the entire output of a seventh day of operation each week. The mill's practical capacity is 7,000 hundred weight of flour per day. Note that Flour sells for SAR 13 a hundred weight (cwt.) and the price of wheat is SAR 5.0 a bushel. About 2.35 bushels of wheat are required per cwt. of flour. Fixed costs now average SAR 5,530 a day, or SAR 0.79 per cwt. The average variable cost of mill operation, almost entirely wages, is SAR 0.5 per cwt. With Sunday operation, wages would be doubled for Sunday work, which would bring the variable cost of Sunday operation to SAR 0.9 per cwt. Total fixed costs per week would increase by SAR 500 (or SAR 33,333) if the mill were to operate on Sunday. (a) Using the information provided, compute the break-even volumes for sixday and seven- day operation. (b) What are the marginal contribution rates for six-day and seven-day operation? (c) Compute the average total cost per cwt. for six-day operation and the net profit margin per cwt. before taxes. (d) Would it be economical for the mill to operate on Sundays?